News Bloghttp://www.ksmcpa.com/news-blog
60Planning for the Future Today – Succession Planning and Business Continuityhttp://www.ksmcpa.com/news-blog/planning-for-the-future-today-succession-planning-and-business-continuity
<p><span style="line-height: 1.4em;">One of the most difficult business decisions and processes for trucking company owners is developing a succession plan, or determining the best timing for a sale to maximize value. Often owner concerns involve the welfare of employees, or the impact on the community home to the business. If transition to the next generation is the desire, issues related to equitability among children participating in the business with those pursuing other dreams can be challenging.</span></p><p><span style="line-height: 1.4em;">A study by the <a href="https://www.exitplanningforadvisors.com/" target="_blank">Business Enterprise Institute, Inc.</a> found in 2012 41 percent of businesses were transitioned to key employees, co-owners, or <a href="http://www.ksmcpa.com/esop" target="">Employee Stock Ownership Plans (ESOPs)</a>. While 29 percent were sold to third parties and 24 percent were transferred to children. Regardless of the potential acquirer of the family business, understanding and knowing the trucking company&rsquo;s value is paramount.</span></p><p><span style="line-height: 1.4em;"><a href="http://www.ksmcpa.com/valuations" target="">Valuation</a> professionals commonly use three approaches in determining an estimated value of closely held businesses.</span></p><p><span style="line-height: 1.4em;">1.&nbsp;</span><span style="line-height: 1.4em;">The </span><strong style="line-height: 1.4em;">income approach</strong><span style="line-height: 1.4em;">, or discounted cash flow method, analyzes the projected free cash to be generated by the business. This cash stream is discounted to determine a value.</span></p><p><span style="line-height: 1.4em;">2.&nbsp;</span><span style="line-height: 1.4em;">The </span><strong style="line-height: 1.4em;">market approach</strong><span style="line-height: 1.4em;">, or guideline public companies method, compares the target company with publicly-traded companies. The market approach will compare price to earnings, revenue and book of public companies in calculating the value of the closely held business.</span></p><p><span style="line-height: 1.4em;">3.&nbsp;</span><span style="line-height: 1.4em;">Lastly, the </span><strong style="line-height: 1.4em;">asset approach</strong><span style="line-height: 1.4em;"> is simply relying on the appraisal of the underlying assets as if the equipment is to be sold. The asset values can differ depending on if an orderly liquidation, or forced liquidation scenario is assumed.</span></p><p>Family succession of transferring leadership and ownership to the children usually works best when done over time. It is difficult to predict the future success of the business under the next generation without mentoring and time spent learning the business before the hand-off. Complete or partial transfers of ownership can be done through various tax strategies such as Grantor Retained Annuity Trust, Defective Grantor Trust and Family Limited Partnerships. If planned properly in advance, these strategies can minimize, or eliminate, estate and gift taxes.</p><p>Selling to an outside buyer can occur through an IPO in the public markets; however, for family-owned trucking companies this can be an expensive endeavor and usually only practical for the largest of the large privately-held carriers. Private buyers often fall into one of two categories; strategic buyers and financial buyers. A strategic buyer is often a competitor, or in the industry, and can justify a premium valuation for the business knowing savings and profit will be achieved through synergies and gains in market share. A financial buyer will be driven primarily on the investment return the business can generate. The financial buyer is capitalizing on ways to improve and increase the business valuation for a not so distant flip of the company.</p><p>An ESOP transaction is the sale of the company stock to a qualified pension plan. An ESOP allows trucking owners to reward employees and maintain jobs in the community in a tax efficient manner. Attributes of an ESOP candidate include capable management team, debt capacity and cash flow to support ESOP debt service, company size and motivation of tax advantages. Cash flow of a post-ESOP S-corporation is greatly improved since there is no federal tax on the ESOP-owned portion. A sale to an ESOP can be for 100 percent of the stock or a lesser percentage. An ESOP&rsquo;s purchase price is often less than what a strategic or financial buyer can offer for the company since an ESOP can only pay what the business cash flow can service. However, because of advantageous tax treatment to the seller, after tax proceeds could be greater.</p><div><span class="MPStyle_BlogAuthor blog-author"><marketpath:token alignment="null" id="e51dcaf4-94bd-4a03-b7c0-b8150b7776dd" settings="width:96;height:96" type="content"></marketpath:token></span></div>dblackmon@ksmcpa.com (Donna Blackmon)Mon, 02 Mar 2015 12:00:00 GMTForm 990 Online Security Breachhttp://www.ksmcpa.com/news-blog/form-990-online-security-breach
<p><span style="font-size:10.0pt;font-family:&quot;Arial&quot;,&quot;sans-serif&quot;">The Urban Institute&#39;s <a href="http://cl.exct.net/?qs=f4efdfdc2a639fd1185b72f552a2067240ae99a89ccabcc13c659eea5e024902" target="_blank">National Center for Charitable Statistics</a> (NCCS) recently discovered that an unauthorized party (or parties) has accessed the Form 990 Online and e-Postcard filing systems for nonprofit organizations. This unauthorized access affected nonprofit users of Internal Revenue Service (IRS) Forms 990, 990-EZ and 990-N (e-Postcard). In addition, it affected users of Form 8868 extensions and filings for charitable organizations in Hawaii,&nbsp;Michigan and New York.<o:p></o:p></span></p><p><span style="font-size:10.0pt;font-family:&quot;Arial&quot;,&quot;sans-serif&quot;">The unauthorized access only impacts organizations who use the Urban Institute&#39;s site to file their returns. Organizations who use an accounting firm or mail paper returns to the IRS are not affected.<o:p></o:p></span></p><p><span style="font-size:10.0pt;font-family:&quot;Arial&quot;,&quot;sans-serif&quot;">The username, first and last name, e-mail address, IP address, phone number and password associated with nonprofit organizations were compromised in this incident.<o:p></o:p></span></p><p><span style="font-size:10.0pt;font-family:&quot;Arial&quot;,&quot;sans-serif&quot;">The NCCS believes no information from the filings themselves was compromised. These forms do not contain Social Security numbers, credit card data, or individual tax filer information, so such sensitive information was not available to the hackers. Copies of the 990 returns, including the e-Postcard, are public documents that are released by the IRS.<o:p></o:p></span></p><p><span style="font-size:10.0pt;font-family:&quot;Arial&quot;,&quot;sans-serif&quot;">If you use the same password for your organization&#39;s Form 990 Online and e-Postcard that you do for other websites or applications, the NCCS strongly encourages you to change it immediately in each of those instances, as well as on these systems.<o:p></o:p></span></p><p><span style="font-size:10.0pt;font-family:&quot;Arial&quot;,&quot;sans-serif&quot;">To change your password on the Form 990, click <a href="http://cl.exct.net/?qs=f4efdfdc2a639fd1ce8f3d2ef662359104a040746feba86226730b27f249e0a1" target="_blank">here</a>.<br /><br />To change your password on the e-Postcard, click <a href="http://cl.exct.net/?qs=f4efdfdc2a639fd1f1be9086dfe0b7ca28b9159458ccba2ab1b49aedbade7acf" target="_blank">here<span style="text-decoration:none;text-underline:none">.</span></a><br /><br />For questions, please visit this <a href="http://cl.exct.net/?qs=f4efdfdc2a639fd15ed23eba763fe8ef8aef1443aa4435f4b5e95265a2e5281c" target="_blank">FAQ</a> page, send an e-mail to <a href="mailto:security@form990.org">security@form990.org</a> or call 1.800.564.9110. </span></p><p><span style="font-size:10.0pt;font-family:&quot;Arial&quot;,&quot;sans-serif&quot;">For more information regarding the Form 990, please <a href="http://www.ksmcpa.com/not-for-profit" target="">contact us</a>.</span></p><p><!--?xml:namespace prefix = "o" ns = "urn:schemas-microsoft-com:office:office" /--><i><span style="font-size: 7.5pt; font-family: Arial, sans-serif;"><!--?xml:namespace prefix = "o" ns = "urn:schemas-microsoft-com:office:office" /-->Source: National Center for Charitable Statistics, Urban Institute</span></i></p>dblackmon@ksmcpa.com (Donna Blackmon)Thu, 26 Feb 2015 21:40:00 GMTStandards Updates - 2/24/15http://www.ksmcpa.com/news-blog/standards-updates-2-24-15
<ul><li><a name="top"></a><a href="#One" target=""><span style="font-weight: 700;">Accounting Standards Update 2014-18</span><br /><em>Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination</em></a><br />&nbsp;</li><li><a href="#Two" target=""><span style="font-weight: 700;">Accounting Standards Update 2015-01</span><br /><em>Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items</em></a><br />&nbsp;</li><li><a href="#Three" target=""><span style="font-weight: 700;">Accounting Standards Update 2015-02</span><br /><em>Consolidated (Topic 810): Amendments to the Consolidation Analysis</em></a><br />&nbsp;</li><li><a href="#Four" target=""><span style="font-weight: 700;">New Web Page Focused on Benefits of GAAP</span></a></li></ul><div style="border-top-color: rgb(204, 204, 204); border-top-width: 1px; border-top-style: solid;">&nbsp;</div><p><a name="One"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="padding: 0px; margin: 0px; width: 31px; height: 11px;" title="" /></a><span style="line-height: 1.4em;"><span style="font-weight: 700;">Accounting Standards Update 2014-18</span></span><br /><em>Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination</em></p><p>In its&nbsp;<a href="http://www.ksmcpa.com/news-blog/standards-updates-1-28-14" target="_blank">last Accounting Standards Update (ASU) for 2014</a>, the Financial Accounting Standards Board (FASB) continued to provide alternatives for private companies with the Private Company Council (PCC) consensus, which describes an alternative that permits an entity to avoid separate recognition of certain intangible assets acquired in a business combination.&nbsp;<a href="http://www.fasb.org/cs/ContentServer?c=Document_C&amp;pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176164674146" target="_blank">ASU 2014-18</a>&nbsp;was issued in December 2014 to address concerns from users of private company financial statements indicating that the benefits of separate identification of certain intangible assets may not justify related costs.</p><p><span style="line-height: 1.4em;">A private company electing to apply the accounting alternative provided under&nbsp;</span><a href="http://www.fasb.org/cs/ContentServer?c=Document_C&amp;pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176164674146" style="line-height: 1.4em;" target="_blank">ASU 2014-18</a><span style="line-height: 1.4em;">&nbsp;should no longer recognize customer-related intangible assets (unless they are capable of being sold or licensed independently from other assets of the business) or noncompete agreements separately from goodwill when accounting for a business combination. Thus, when elected, fewer intangible assets will be identified separately in the financial statements.</span></p><p><span style="line-height: 1.4em;">If this accounting alternative is elected, the entity must also adopt the private company alternative to amortize goodwill provided under&nbsp;</span><a href="http://www.fasb.org/cs/ContentServer?pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176163744355" style="line-height: 1.4em;" target="_blank">ASU 2014-02,&nbsp;<em>Intangibles&mdash;Goodwill and Other (Topic 350): Accounting for Goodwill</em></a><span style="line-height: 1.4em;">. However, the accounting alternative described in ASU 2014-02 may be elected without applying&nbsp;</span><a href="http://www.fasb.org/cs/ContentServer?c=Document_C&amp;pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176164674146" style="line-height: 1.4em;" target="_blank">ASU 2014-18</a><span style="line-height: 1.4em;">.</span></p><p><span style="line-height: 1.4em;">The decision to elect the accounting alternative described in&nbsp;</span><a href="http://www.fasb.org/cs/ContentServer?c=Document_C&amp;pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176164674146" style="line-height: 1.4em;" target="_blank">ASU 2014-18</a><span style="line-height: 1.4em;">&nbsp;must be made upon the occurrence of the first transaction within its scope in fiscal years beginning after Dec. 15, 2015. Early application is permitted for any financial statements not yet available for issuance.</span></p><div style="border-top-color: rgb(204, 204, 204); border-top-width: 1px; border-top-style: solid;">&nbsp;</div><p><a name="Two"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="padding: 0px; margin: 0px; width: 31px; height: 11px;" title="" /></a><span style="line-height: 1.4em;"><span style="font-weight: 700;">Accounting Standards Update 2015-01</span><br /><em>Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items</em></span><span style="line-height: 1.4em; font-weight: 700;">&nbsp;</span><span style="line-height: 1.4em; font-weight: 700;">&nbsp;</span></p><p>In January 2015, FASB issued&nbsp;<a href="http://www.fasb.org/cs/ContentServer?c=Document_C&amp;pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176164695031" target="_blank">ASU 2015-01</a>&nbsp;as part of its effort to reduce complexity in accounting standards. This update eliminates the concept of extraordinary items from accounting principles generally accepted in the United States (GAAP), thus simplifying income statement presentation requirements. Previously, entities were required to separately classify, present and disclose events and transactions meeting the criteria (both unusual in nature and infrequent of an occurrence) for extraordinary classification.&nbsp;<a href="http://www.fasb.org/cs/ContentServer?c=Document_C&amp;pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176164695031" target="_blank">ASU 2015-01</a>&nbsp;reduces complexity as preparers of financial statements will no longer need to assess events or transactions to determine whether they are or are not extraordinary items under GAAP.</p><p><span style="line-height: 1.4em;">Although the amendment eliminates the requirements for entities to consider if an event is extraordinary, there are presentation and disclosure requirements. Those events that are unusual in nature or occur infrequently, or both, are required to be presented as a separate component of income from continuing operations or disclosed in the notes to the financial statements.</span></p><p><span style="line-height: 1.4em;">The update is effective for fiscal years beginning after Dec. 15, 2015. The amendments may be applied prospectively or retrospectively for all prior periods presented. Early adoption is permitted.</span></p><div style="border-top-color: rgb(204, 204, 204); border-top-width: 1px; border-top-style: solid;">&nbsp;</div><p><a name="Three"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="padding: 0px; margin: 0px; width: 31px; height: 11px;" title="" /></a><span style="line-height: 1.4em;"><span style="font-weight: 700;">Accounting Standards Update 2015-02</span><br /><em>Consolidated (Topic 810): Amendments to the Consolidation Analysis</em></span><span style="line-height: 1.4em; font-weight: 700;">&nbsp;</span></p><p>Stakeholders have expressed concerns to FASB that, in certain instances, GAAP would require a reporting entity to consolidate another entity, when the reporting entity does not have contractual rights providing the ability to act primarily on its own behalf, does not hold a majority of the entity&rsquo;s voting rights, or is not exposed to a majority of the entity&rsquo;s economic benefits or obligations, thus not providing useful information about the reporting entity&rsquo;s results. To address those concerns, FASB previously issued an indefinite deferral for certain entities.&nbsp;<a href="http://www.fasb.org/cs/ContentServer?c=Document_C&amp;pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176164939022" target="_blank">ASU 2015-02</a>, which was issued in February 2015, rescinds the deferral and makes changes to the consolidation guidance.</p><p><a href="http://www.fasb.org/cs/ContentServer?c=Document_C&amp;pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176164939022" style="line-height: 1.4em;" target="_blank">ASU 2015-02</a><span style="line-height: 1.4em;">&nbsp;affects reporting entities required to evaluate whether they consolidate certain legal entities and will require a reevaluation to determine what entities are consolidated. The ASU modifies the process used to evaluate whether limited partnerships and similar entities are variable interest entities (VIEs) or voting interest entities and affects the analysis performed by reporting entities regarding VIEs, particularly those with fee arrangements and related party relationships, and provides a scope exception for certain investment funds.</span></p><p><em style="line-height: 1.4em;">Limited Partnerships and Similar Legal Entities</em></p><p><span style="line-height: 1.4em;">Three main provisions of&nbsp;</span><a href="http://www.fasb.org/cs/ContentServer?c=Document_C&amp;pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176164939022" style="line-height: 1.4em;" target="_blank">ASU 2015-02</a><span style="line-height: 1.4em;">&nbsp;affect limited partnerships and similar legal entities. The guidance adds a requirement that limited partnerships must provide partners with either substantive kick-out rights or substantive participating rights over the general partner to qualify as voting interest entities. The guidance also eliminates the presumption that a general partner should consolidate a limited partnership. Finally, for limited partnerships that do qualify as voting interest entities, a limited partner should consolidate when the partner has a controlling financial interest, which may be achieved through holding a limited partner interest that provides substantive kick-out rights.</span></p><p><em style="line-height: 1.4em;">Evaluating Fee Arrangements</em></p><p><span style="line-height: 1.4em;">Currently, six criteria are used to determine whether fees paid by an entity to a decision maker or service provider represent a variable interest in the entity. If the fees paid are determined to represent a variable interest, the reporting entity must evaluate whether the interest represents a controlling financial interest, and, if so, requires consolidation of the VIE. The update eliminates three of the six criteria used in this analysis. Additionally, the update specifies that some fees paid to a decision maker are excluded from the evaluation in determining whether the interest represents a controlling financial interest if the fees are both customary and commensurate with the level of effect required to provide the services.</span></p><p><em style="line-height: 1.4em;">Related Party Relationships</em></p><p><span style="line-height: 1.4em;">Under current GAAP, when no single party has a controlling financial interest in a VIE, interests held by a reporting entity&rsquo;s related parties are treated as though they belong to the reporting entity when determining the primary beneficiary of the VIE. The ASU reduces this application by requiring that related party relationship first be considered indirectly on a proportionate basis, rather than in their entirety. After this assessment is performed the analysis is complete, except in two situations. The related party relationships would be considered in their entirety when entities under common control collectively have a controlling financial interest. If this is not applicable and substantially all the activities of the VIE are conducted on behalf of a single variable interest holder, excluding the decision maker, in the related party group, that single variable interest holder must consolidate the VIE.</span></p><p><span style="line-height: 1.4em;">Guidance related to situations in which power is shared between two or more related entities that hold variable interests in a VIE was not amended by this update.</span></p><p><span style="line-height: 1.4em;">The update is effective for public business entities for fiscal years beginning after Dec.&nbsp;</span><span style="line-height: 1.4em;">15, 2015, and all other entities for fiscal years beginning after Dec. 15, 2016. Early adoption is permitted. The amendments provided in the ASU may be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or applied retrospectively.</span></p><div style="border-top-color: rgb(204, 204, 204); border-top-width: 1px; border-top-style: solid;">&nbsp;</div><p><a name="Four"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="padding: 0px; margin: 0px; width: 31px; height: 11px;" title="" /></a><span style="font-weight: 700;">New Web Page Focused on Benefits of GAAP</span><span style="line-height: 1.4em; font-weight: 700;">&nbsp;</span><span style="line-height: 1.4em; font-weight: 700;">&nbsp;</span></p><p><span style="line-height: 1.4em;">The Financial Accounting Foundation (FAF), which oversees the Financial Accounting Standards Board and Government Accounting Standards Board, has launched&nbsp;</span><a href="http://www.accountingfoundation.org/gaap" style="line-height: 1.4em;" target="_blank">a new Web page</a><span style="line-height: 1.4em;">&nbsp;that focuses on the importance of GAAP:&nbsp;</span><a href="http://www.accountingfoundation.org/gaap" style="line-height: 1.4em;" target="_blank">www.accountingfoundation.org/gaap</a><span style="line-height: 1.4em;">. The page explores the benefits of GAAP for all types of entities, public companies, state and local governments, private companies, and not-for-profits, describing GAAP as &ldquo;the grammar and the punctuation&rdquo; determining the language of financial reporting. The site provides a resource to all stakeholders of financial statements, particularly those not familiar with the benefits of GAAP.</span></p><div><span class="MPStyle_BlogAuthor blog-author"><marketpath:token alignment="null" id="24d831cb-7c1b-46c9-9bbc-6e150bd351e7" settings="width:96;height:96" type="content"></marketpath:token></span></div>jcody@ksmcpa.com (Jenina Cody)Tue, 24 Feb 2015 13:00:00 GMTIRS Simplifies Small Taxpayer Compliance with Repair Regulationshttp://www.ksmcpa.com/news-blog/irs-simplifies-small-taxpayer-compliance-with-repair-regulations
With Revenue Procedure 2015-20, the IRS on Friday backed away from their mandatory requirement that all taxpayers apply the TPRs to prior years.jcody@ksmcpa.com (Jenina Cody)Tue, 17 Feb 2015 21:12:00 GMTAffordable Care Act Updateshttp://www.ksmcpa.com/news-blog/affordable-care-act-updates
<ul><li><a name="top"></a><a href="#One" target="">IRS offers relief of penalties associated with excess advance premium credit</a><br />&nbsp;</li><li><a href="#Two" target="">Individual Shared Responsibility Provision</a><br />&nbsp;</li><li><a href="#Three" target="">Employers required to offer health plans or pay penalty</a><br />&nbsp;</li><li><a href="#Four" target="">Non-integrated health reimbursement arrangements are not considered to provide minimum essential coverage</a><br />&nbsp;</li></ul><div style="margin: 0px; border-top: #cccccc 1px solid">&nbsp;</div><p><a name="One"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a><strong>IRS offers relief of penalties associated with excess advance premium credit</strong></p><p>The IRS has provided a procedure to help taxpayers avoid late payment penalties&nbsp;if they are unable to repay excess advance payments of the Affordable Care Act (ACA)&#39;s premium credit for the 2014 tax year by the due date of their 2014 return. Taxpayers facing penalties for the underpayment of estimated taxes attributable to those excess payments can also get relief.</p><p><span style="line-height: 1.4em;">Taxpayers can qualify for these abatements if: </span></p><ol><li><span style="line-height: 1.4em;">They are otherwise current with their filing and payment obligations; and </span></li><li><span style="line-height: 1.4em;">They report the amount of excess advance credit payments on their timely filed 2014 tax return, including extensions. </span></li></ol><p><span style="line-height: 1.4em;">Taxpayers facing the late-payment penalty must also have a balance due for the 2014 tax year due to excess advance payments of the premium tax credit.</span></p><p>Taxpayers who are unable to repay the excess advance payments will receive a notice from the IRS in the mail. Taxpayers should write a letter to the address listed on the notice that contains the statement: &ldquo;I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit.&rdquo;</p><p>To request an abatement of the underpayment of estimated tax penalty, taxpayers should check box A in Part II of Form 2210, complete page 1 of the form, and include the form with their return along with this statement: &ldquo;Received excess advance payment of the premium tax credit.&rdquo; Taxpayers do not need to complete any of the form&rsquo;s other pages or calculate the penalty amount.</p><p><a name="Two"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a><strong>Individual Shared Responsibility Provision</strong></p><p>Have you been wondering how the ACA will affect your 2014 tax return? For more than 100 million taxpayers the only additional step will be checking a box on Form 1040 indicating each member of their family had qualifying health coverage for the whole year. For those who had health coverage gaps or no coverage in 2014, however, it&rsquo;s time to contact your tax professional.</p><p>For 2014, you may be exempt from the health coverage requirement if you meet certain criteria. Your tax professional can help you determine if you qualify for an exemption from the Individual Shared Responsibility provision.</p><p>It&rsquo;s also important to correct the issue by enrolling in a qualifying health insurance program before the 2015 deadline. The open enrollment period for 2015 ends Feb. 15, and employers have until Feb. 2 to issue W-2s, so don&rsquo;t wait until you receive your W-2 to talk with your tax professional or you could miss the deadline. The fee for not having health coverage is increasing from 1% of household income or $95 in 2014 to 2% of household income or $325 per person (maximum penalty per family is $975) in 2015.</p><p><a name="Three"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a><strong>Employers required to offer health plans or pay penalty</strong></p><p>Originally, applicable large employers were required to comply with the Patient Protection and Affordable Care Act (ACA) after Dec. 31, 2013, but the IRS has delayed the tax for all employers until this year, 2015. For employers with 100 or more full-time equivalent employees, affordable minimum essential coverage must be offered to at least 70% percent of full-time employees in 2015 in order to avoid a penalty. Mid-sized employers (50-99) have until Jan. 1, 2016, to comply with the employer mandate without facing any Section 4890H penalties.</p><p>An applicable large employer must determine whether to &ldquo;pay or play&rdquo; (i.e., whether to offer a plan or not). This article is not focused on a pay or play analysis; rather, it is centered on a different and distinct excise tax. This excise tax is assessed if any employer, whether required or not, offers a group plan that does not provide for minimum essential coverage. The excise tax is $100 per day per individual to whom the failure relates.</p><p><a name="Four"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a><strong>Non-integrated health reimbursement arrangements are not considered to provide minimum essential coverage</strong></p><p>A common plan offered by employers is a health reimbursement arrangement (HRA). An HRA is an arrangement that is funded solely by an employer which reimburses an employee for medical care expenses. HRAs are generally considered to be group health plans under the Internal Revenue Code. An HRA on its own does not constitute minimum essential coverage under the ACA even if the HRA reimburses for outside plans that would normally constitute minimum essential coverage. An employer may, however, offer an HRA in combination with other coverage and satisfy the requirement to offer minimum essential coverage. This is known as an integrated HRA.</p><p>In order for an HRA to be integrated, it must only be available to employees who are covered by the primary group health plan that is provided by the employer and satisfies the annual dollar limit prohibition. A plan violates the annual dollar limit prohibition if the plan sets a maximum dollar amount allowed for covered benefits.</p><p>The IRS issued guidance in&nbsp;<a href="http://www.irs.gov/pub/irs-drop/n-13-54.pdf">Notice 2013-54</a>&nbsp;that explains that an HRA cannot be used in conjunction with the individual marketplace to comply with the employer mandate. Since an HRA is considered a group health plan, this arrangement will run afoul of the annual dollar limit prohibition. Employers offering a group health plan must provide minimum essential coverage or the employer will be subject to an excise tax of $100 per day per individual to whom the failure relates.</p><p>Employers should seriously consider the consequences of failing to offer a group health plan that constitutes minimum essential coverage. Both small and large employers should confirm with their benefits advisor that the plan(s) offered provides minimum essential coverage. If an employer fails to offer a group health plan that encompasses all of the minimum essential coverage requirements, the employer is subject to an excise tax of $100 per day per individual to whom the failure relates. In other words, an employer can face a maximum of $36,500 each year per employee for failing to offer a compliant group health plan.</p><p>In addition to non-integrated HRAs, there are a plethora of other mandates that can trigger the $100 per day per individual to whom the failure relates:</p><p><a href="http://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/7ecd61d2-156f-4056-b832-e0be78cbafa2/mandates-triggering-excise-tax-chart.pdf" target="_blank"><img align="left" alt="" height="196" src="https://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/4634e68c-c528-44d7-ad9d-a2d71d77ed07/mandates-triggering-excise-tax-chart.jpg" style="width: 250px; height: 196px; margin: 0px;" title="" width="250" /></a><br /><br /><br /><br /><br /><br /><br /><br /><br /><br />If an employer offers a plan that is not complaint with these requirements, there may be steps that can be taken to avoid or reduce potential excise tax. Contact your KSM advisor to review your specific situation and determine any corrective actions that may need to be taken.</p><p><em>If you have any questions concerning how these updates affect your tax situation, please contact your KSM advisor.</em></p>jcody@ksmcpa.com (Jenina Cody)Thu, 29 Jan 2015 15:22:00 GMTIndiana Court Rules Finance Companies Can Recoup Sales Tax on Defaulted, Discounted Loans Using Market Discount Ruleshttp://www.ksmcpa.com/news-blog/indiana-court-rules-finance-companies-can-recoup-sales-tax-on-defaulted-discounted-loans-using-market-discount-rules
<div>On Dec. 24, 2014, the Indiana Tax Court issued its long-awaited decision in <em>SAC Finance vs. Indiana Department of Revenue</em>, a case that centered on the calculation of the allowable bad debt deduction afforded to the financing arm in a buy here-pay here structure. In SAC, the finance company purchased paper from a related retailer on a non-recourse basis at a discount. The central issue in the case was whether the finance company could calculate its allowable bad debt deduction using the Market Discount Rules.&nbsp;</div><div>&nbsp;</div><div>The Indiana Tax Court held that the finance company was entitled to use the Market Discount Rules and the Indiana Department of Revenue (IDR) was incorrect in disallowing refunds calculated on this basis; reversing course on the IDR&rsquo;s long-standing position that the sales tax bad debt deduction calculation excluded market discount income. While we fully expect the IDR to file an appeal, the Indiana Tax Court has appellate authority, meaning the IDR is not guaranteed an appeal &mdash; the Indiana Supreme Court will decide whether or not to take the case if/when the IDR attempts to appeal the decision. The IDR has 30 days from the date of this decision to choose whether or not to file an appeal.</div><div><br /><div style="border-top: 1px solid #ccc; margin: 10px 0 6px;">&nbsp;</div></div><p>KSM will provide an update upon learning of the IDR&rsquo;s decision regarding whether or not it will file an appeal. In the meantime, please do not hesitate to <a href="http://www.ksmcpa.com/buy-here-pay-here" >contact us</a>.</p>ameyer@ksmcpa.com (Amanda Meyer)Wed, 21 Jan 2015 20:30:00 GMTIndiana Tax Court Case - Sales/Use Tax for Contractorshttp://www.ksmcpa.com/news-blog/indiana-tax-court-case-sales-use-tax-for-contractors
<p><span style="line-height: 1.4em;">On Dec. 19, 2014, the Indiana Tax Court issued a decision in&nbsp;</span><em style="line-height: 1.4em;">Lowes Home Centers, LLC v. Indiana Department of State Revenue</em><span style="line-height: 1.4em;">&nbsp;that may radically change the sales tax landscape for Indiana real property contractors. The Indiana Department of Revenue has had a long-standing policy of applying different tax treatment depending on the underlying real property construction contract. The historic treatment has been as follows: &nbsp;&nbsp;</span></p><ul><li><strong>Contractors operating under a lump sum contract:</strong>&nbsp;Treated as the end user of materials, and thus taxed on the cost of materials they purchase</li><li><strong>Contractors operating under a time and materials (T&amp;M) contract:</strong>&nbsp;Treated as sellers of materials, and thus have a responsibility to collect sales tax on materials transferred to customers</li></ul><p><span style="line-height: 1.4em;">The Tax Court held that this distinction between T&amp;M and lump sum contractors does not exist in the Indiana Code and the Department has inappropriately created an artificial distinction via regulations it has adopted.&nbsp;As a result, it was determined that Lowes should owe use tax on its costs of materials incorporated into realty via a T&amp;M contract (i.e. be treated as lump sum contractor would historically have been treated).&nbsp;</span></p><p>The effect of this decision could mean that there is now one Indiana standard for all real property construction contractors&nbsp;<em>regardless of the type of contract</em>&nbsp;entered into with its customer. Having a uniform standard, in which the contractor would owe use tax on its purchases of all materials incorporated into realty in Indiana, could significantly decrease the recordkeeping/compliance burden of contractors utilizing multiple types of contracts.</p><p>While much may have changed, the <em>Lowes</em> decision does <u>not</u> impact the tax treatment for contractors operating under lump sum contracts for real property or any contract for the sale or repair of personal property, even if performed by a real property construction contractor.</p><p>We expect the Department of Revenue to file an appeal; however, it will be up to the Indiana Supreme Court whether or not it takes the case if/when the Department attempts to appeal the decision. Until the appeals process plays out, there will be some uncertainty for real property contractors operating under a T&amp;M contract. Department regulations and other guidance (such as Information Bulletin ST 60) may need to be re-written as a result of this decision.<br /><br />In the meantime, we wanted to make you aware of this exciting development. If you have any questions, please do not hesitate to <a href="http://www.ksmcpa.com/construction" >contact us</a>.</p>ameyer@ksmcpa.com (Amanda Meyer)Fri, 16 Jan 2015 20:32:00 GMTState & Local Tax Update: 1/14/15http://www.ksmcpa.com/news-blog/state-local-tax-update-1-14-15
<p><span style="font-family: Arial; font-size: large; font-weight: bold; line-height: normal;">Personal Property Tax Compliance</span></p><p>Many states impose a personal property tax, and compliance due dates are fast approaching. Because most states do not have the same assessment date or due date, it is essential that you are familiar with each state&#39;s deadlines, especially if your company holds assets in different states.</p><p>Property taxes often comprise more than 40% of a company&#39;s state and local tax burden, but many businesses over-report their personal property taxes&nbsp;due to errors, missed exemptions and other common mistakes. Now is a good time to review your filings for possible exemptions and clean up your fixed asset report for items that have been disposed.</p><div><span style="line-height: 1.4em;">If you would like assistance with your personal property filings, contact Katz, Sapper and Miller&#39;s property tax leader, </span><a href="http://cl.exct.net/?qs=d2239712b298714ffec8fe9645b3a5afef139a146e77f89213009c5c19ae8455" style="line-height: 1.4em;" title="Chad Miller">Chad Miller</a><span style="line-height: 1.4em;">, or state and local tax manager, </span><a href="http://cl.exct.net/?qs=d2239712b298714fb6f8cfebdf2f9e2ff1c299bc50a0f785790acc9ecb022baf" style="line-height: 1.4em;" title="Heather Judy">Heather Judy</a><span style="line-height: 1.4em;">. We would be happy to assist you through this process</span><span style="line-height: 1.4em;">.</span></div><div style="margin-top: 10px; margin-bottom: 6px; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(204, 204, 204);">&nbsp;</div><p><strong>California Releases Like-Kind Exchange Form: </strong>The 2014 California <a href="http://cl.exct.net/?qs=d2239712b298714fadc2ae60630048b3c00443df2c22e8ab4cb084349d6ba35c" title="Form 3840">Form 3840</a> has been officially released by the Franchise Tax Board. This form will be used to comply with the like-kind exchange information reporting requirements effective January 1, 2014.</p><p><strong>California Court Issues Ruling on &quot;Doing Business&quot; for LLC Members: </strong>The California Superior Court has issued a tentative ruling granting the taxpayer&#39;s motion for summary judgment. An Iowa corporation without business activities or physical presence in California challenged the imposition of the $800 minimum tax imposed as a result of the taxpayer having a membership interest in a California limited liability company. The Franchise Tax Board asserted that, as a member of an LLC that is treated as a partnership for tax purposes, the taxpayer was engaged in business in California. The court determined that the partnership status of an LLC applies only for the purpose of computing income tax. Additionally, the taxpayer&#39;s ownership share in the LLC was too small to have any impact on the management of the LLC or to control its business. (Swart Enterprises v. Cal. Franchise Tax Bd., Cal. Sup. Ct. (Fresno County), Dkt. No. 13CECG02171, 11/14/2014.)</p><p><strong>California Court Rules Transfer of Interest in Legal Entity is Subject to Documentary Transfer Tax: </strong>The California Court of Appeals affirmed the judgment of the Superior Court after determining that state statute permits a documentary transfer tax when a transfer of interest in a legal entity results in a &quot;change of ownership&quot; within the meaning of Cal. Rev. &amp; Tax. Cd. &sect;&nbsp;64(c) or Cal. Rev. &amp; Tax. Cd. &sect;&nbsp;64(d). BA Realty, LLLP, owned 926 North Ardmore Avenue, LLC, a single member entity established to hold and manage an apartment building. In 2008, the owners of BA Realty sold approximately 90% of their partnership interests, 45% to each of two trusts, prompting the County of Los Angeles Registrar-Recorder to send a notice demanding that Ardmore pay a documentary transfer tax based on the value of the apartment building since the cumulative sale of more than 50% of BA Realty qualified as a &quot;change of ownership&quot; of the apartment building. Although Ardmore contended that a documentary tax may only be applied to &quot;realty sold,&quot; which generally does not include sales or transfer of legal entities that hold<br />title to realty, in certain situations prior case law has interpreted the term &quot;realty sold&quot; to have the same meaning as the phrase &quot;change of ownership&quot; as used in property tax provisions. Because the transfer of a 90% interest in BA Realty qualified as a &quot;change of ownership&quot; of the property held by Ardmore, the transfer necessarily qualified as the &quot;sale&quot; of realty within the meaning of the Documentary Transfer Tax Act &sect; 11911. As such, the County was permitted to impose a transfer tax under these circumstances. See <a href="http://cl.exct.net/?qs=d2239712b298714f4cdd7203ac6edb9c848c0ab08392c0ab84e528a44dba7161"><em>926 North Ardmore Avenue, LLC v. County of Los Angeles, Cal</em></a><em>.</em> for additional information.</p><p><strong>Georgia Tax Tribunal Allows Texas Franchise Tax Deduction for Individual:</strong> The Georgia Tax Tribunal held that a Georgia taxpayer was entitled to make a subtraction adjustment from his federal adjusted gross income in computing his Georgia taxable income for indirect pass-through income from his ownership interest in a Texas limited liability company, which was subject to the Texas franchise tax, because the Texas franchise tax is a tax measured on or measured by income for purposes of the&nbsp;adjustment provision under Ga. Code Ann. &sect;&nbsp;48-7-27(d)(1)(C).&nbsp; See <a href="http://cl.exct.net/?qs=d2239712b298714ff7a35a78113c53b758dca8073f5c8b008e2522923b68be80" title="Rosenberg v.MacGinnitie"><em>Rosenberg v. MacGinnitie</em></a>&nbsp;for additional information.</p><p><strong>Michigan to Pay &quot;Bonus Interest&quot; on Refunds:</strong> Effective January 1, 2015, in addition to and separate from the regular interest added to a refund, for refunds for Michigan Business taxes, additional interest will be added to refunds that are not paid within 90 days after the claim is approved or 90 days after the date established by law for filing the return, whichever is later. This additional interest will be paid at a rate of 3% per annum for each day the refund is not issued within the time frame required, if certain conditions are met. See <a href="http://cl.exct.net/?qs=d2239712b298714fb392004716fb070517b684cf9ac50fa8139ed98e3f47974d" title="HB 4760">HB 4760</a> for additional information.&nbsp;</p><p><strong>Nebraska Issues Guidance on Owner-Operators:</strong>&nbsp;<a href="http://cl.exct.net/?qs=d2239712b298714fbae40a301d720746cc58b4ecc69dde53a6297e0f0f83c601">Nebraska Information Guide 6-512-2014</a> has been issued to assist in determining if an owner-operator is leasing a vehicle or acting as a common/contract carrier. Leases of vehicles may be subject to sales/use tax if certain exemptions are not met.&nbsp;</p><p><strong>Nebraska Issues Guidance on Market-Based Sourcing:&nbsp;</strong>Effective January 1, 2014, Nebraska will utilize a market-based sourcing method for apportioning sales of &quot;other than tangible personal property.&quot; Market-based sourcing sources sales to the location where the market is (where the service is received or the intangible is used). Market-based sourcing does not require a specific percentage of the market to be in Nebraska. A <a href="http://cl.exct.net/?qs=d2239712b298714f879ae2879cf8e5e31e1a0ecfae42657ead0fedc6a0eb58db" title="Nebraska information release">Nebraska information release</a> provides examples and definitions for this new rule.</p><p><strong>Texas Rules Net Losses Are Includable in Sales Factor:&nbsp; </strong>The Texas Court of Appeals has ruled that a company&#39;s losses on sales of investments and capital assets must be subtracted from gross receipts in determining the apportionment factor for Texas franchise tax purposes. Texas includes an entity&#39;s gross receipts, including net gain from the sale of investments and capital assets, in its apportionment factor.&nbsp;&quot;Net gain&quot; is an undefined term with multiple meaning. The comptroller&#39;s interpretation under 3.591 is the cumulative gain or loss on its various investment and capital asset sales made throughout the year. The court gave deference to the comptroller&#39;s interpretation deference because: (1) the plain meaning of &quot;net&quot; leads to the proper conclusion that net gain requires that gains and losses be offset against one another in order that a net figure be obtained; and (2) the comptroller&#39;s interpretation is reasonable. See <a href="http://cl.exct.net/?qs=d2239712b298714fd65d12f39c7ec21b071b8a44f63b8917ad88d6d8953a7965"><em>Hallmark Marketing Co., LLC</em></a>, for more information.&nbsp;</p><p><strong>Texas Rules In-State Software Creates Nexus:</strong> &nbsp;The comptroller has ruled that an out-of-state&nbsp; corporation that sells computer programs and digital content through the Internet to Texas customers must collect Texas use tax because it has created nexus via the recurring sale or licensing of software through downloads from the internet over a period of years that generated significant revenue in Texas, which constitutes substantial physical presence in Texas. Importantly, the retailer retained all rights in, title to and ownership of the downloaded software, which are controlled by license agreements restricting the customer&#39;s use. See <a href="http://cl.exct.net/?qs=d2239712b298714f17820a28292e3c1d4845ab8d41b9cd8d832e1771720dc54c" title="Texas Comptroller's Decision 106.632">Texas Comptroller&#39;s Decision 106.632</a> for additional information.</p><p><strong>Virginia Taxes E-Delivered Software if Sold with Hardware</strong>:&nbsp;Charges for prewritten software and related services billed on the same invoice with taxable computer hardware and other equipment for a medical system were taxable even if the software was delivered electronically. While the sale of software delivered electronically to customers does not constitute the sale of tangible personal property and is generally not subject to sales and use taxation, the exemption only applies for services not involving an exchange of tangible personal property. In this case, although the software was delivered electronically, the software was part of the overall sale of taxable tangible personal property (the medical system) and was properly included in the taxable sales price of the system. See <a href="http://cl.exct.net/?qs=d2239712b298714fa574d4534ea7681cc2f2d4550a32e3818426ce273d7082d4">Virginia Public Document Ruling 14-178</a> for additional information.</p><p><strong>Washington Determines Trailing Nexus Rule Valid:</strong> An out-of-state company having B&amp;O nexus only through 2006 filed a refund claim with regard to B&amp;O tax paid from 2007-2010. Under Washington&#39;s 2006 &quot;trailing nexus rule&quot; (Rule 194) nexus continued for an additional period, even if the nexus creating activity ceased. The Appeals Division of the Washington Department of Revenue denied the taxpayer&#39;s refund request, citing the above trailing nexus rule. See <a href="http://cl.exct.net/?qs=d2239712b298714ff20ac05a06c502a2359a449591b08027d9aa6d9188c451fc" title="Washington Tax Determination 14-0104">Washington Tax Determination 14-0104</a> for additional information.</p><div><span class="MPStyle_BlogAuthor blog-author" style="width: 592px;"><marketpath:token alignment="null" id="f7067c08-e7a6-4997-b3b5-eee7ef9d96ad" settings="width:96;height:96" type="content"></marketpath:token></span></div><p>&nbsp;</p>jcody@ksmcpa.com (Jenina Cody)Wed, 14 Jan 2015 18:22:00 GMTThe Manufacturing Advisor: Tax Policy of Critical Concern to Manufacturershttp://www.ksmcpa.com/news-blog/the-manufacturing-advisor-tax-policy-of-critical-concern-to-manufacturers
Tax Policy of Critical Concern to Manufacturers: The 2014 Indiana Manufacturing Survey: Strong for Today, Concerned for Tomorrow was full of enlightening information for the Hoosier manufacturing industry, but one of the most striking pieces of information to come from the survey was this: When asked to select the most critical factor in terms of manufacturing cost and viability, property tax policy and corporate tax policy were rated extremely important by 66% of respondents, finishing . just a single percentage point behind regulatory issues and healthcare. And, in this day of 24/7 coverage of the Affordable Care Act, that’s saying something.jcody@ksmcpa.com (Jenina Cody)Thu, 18 Dec 2014 14:25:00 GMTThe Advisor - Issue 2, 2014http://www.ksmcpa.com/news-blog/the-advisor-issue-2-2014
<p><span style="font-weight: 700;"><span style="font-size: 18px;">In This Issue:</span></span></p><p><a href="http://www.ksmcpa.com/managing-partner-message-advisor-2014" ><span style="font-weight: 700;">Managing Partner Message</span></a><br /><span style="line-height: 1.4em;">It is always a pleasure to share some of the great happenings taking place at Katz, Sapper &amp; Miller, none of which would be possible without the combination of talented, dedicated employees and wonderful clients.&nbsp;</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/david-a-resnick" ><span style="line-height: 1.4em; font-size: 12px;"><span style="line-height: 1.4em;">D</span>avid Resnick</span></a><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><div><a href="http://www.ksmcpa.com/tax-planning-pitfalls-for-developers-in-public-private-partnerships" ><b>Tax-Planning Pitfalls for Developers in Public-Private Partnerships</b></a><br />Public-private partnerships (P3) are a hot topic in real estate development. With many real estate developers and construction companies still experiencing a lack of liquidity coming out of the Great Recession, these cooperative agreements between government and private entities allow the building of many projects that would not happen otherwise<span style="line-height: 1.4em;">.&nbsp;</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><span style="line-height: 1.4em; font-size: 12px;"><a href="http://www.ksmcpa.com/chad-l-halstead" >Chad Halstead</a>,</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">&nbsp;JD</span><br />&nbsp;</div><p><a href="http://www.ksmcpa.com/2015-hiring-outlook-the-year-of-the-contractor" ><b>2015 Hiring Outlook: The Year of the Contractor</b></a><br /><span style="line-height: 1.4em;">It would be hard to argue the U.S. economy has not fared better in 2014 than 2013, and it certainly looks like that trend will continue into 2015. Like the economy, hiring and unemployment trends have also improved.</span><span style="line-height: 1.4em;">&nbsp;</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/d-mark-barnhart" ><span style="line-height: 1.4em; font-size: 12px;">Mark Barnhart</span></a><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">, CPC, CERS</span></p><p><a href="http://www.ksmcpa.com/accounting-considerations-with-tax-increment-financing" ><span style="font-weight: 700;">Accounting Considerations with Tax Increment Financing</span></a><br /><span style="line-height: 1.4em;">Among economic incentives, tax increment financing (TIF) is a common financial tool of local governments to spur growth. Essentially, TIF provides upfront funding of development efforts, which are repaid by the resulting higher incremental future tax revenues.</span><span style="line-height: 1.4em;">&nbsp;</span><span style="color: rgb(169, 169, 169);"><span style="line-height: 1.4em; font-size: 12px;">By&nbsp;<span style="line-height: 1.4em;">M</span>att Bishop, CPA, MBA</span></span><br /><br /><a href="http://www.ksmcpa.com/amortization-of-goodwill-is-back-on-the-table" ><b>Amortization of Goodwill Is Back on the Table</b></a><br /><span style="line-height: 1.4em;">Companies are finding opportunities for growth through acquisitions. Upon completing an acquisition, any unallocated acquisition price is presented on the balance sheet as &ldquo;goodwill.&rdquo;&nbsp;</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/jason-e-patch" ><span style="line-height: 1.4em; font-size: 12px;"><span style="line-height: 1.4em;">J</span>ason Patch</span></a><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">, CPA</span><br /><br /><b><a href="http://www.ksmcpa.com/weighing-the-decision-to-move-to-the-cloud" >Weighing the Decision to Move to the Cloud</a></b><br /><span style="line-height: 1.4em;">By now, everyone has heard about cloud computing and, likely, has at least considered use of the cloud for professional or personal needs.&nbsp;</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;<a href="http://www.ksmcpa.com/charles-c-brandt-iii" >Charlie Brandt</a></span></p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s&nbsp;<em>The Advisor</em>&nbsp;is a bi-annual newsletter that focuses on business and tax solutions for today&#39;s entrepreneur.</p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p>ameyer@ksmcpa.com (Amanda Meyer)Wed, 17 Dec 2014 22:50:00 GMTCongress Passes "Tax Extenders" Legislationhttp://www.ksmcpa.com/news-blog/congress-passes-tax-extenders-legislation
<p>Yesterday, the Senate passed the Tax Increase Prevention Act of 2014, also known as the &quot;tax extenders&quot; legislation. This bill now goes to President Obama for signature.</p><p><span style="line-height: 1.4em;">The &quot;tax extenders&quot; legislation extends more than 50 expired tax provisions retroactively to the beginning of 2014. </span><strong style="line-height: 1.4em;">These provisions have only been extended for 2014.</strong></p><p>Two of the most significant provisions that were extended are bonus depreciation and Section 179 expensing.</p><ul><li><strong>Bonus depreciation </strong>allows for taxpayers to claim an additional first-year depreciation deduction equal to 50% of the cost of new assets placed in service prior to January 1, 2015. In order to qualify for bonus depreciation, the asset placed in service must be a new piece of tangible property.</li><li><strong>Section 179</strong> allows for taxpayers to expense up to $500,000 of the cost of qualified assets with an overall investment limitation of $2 million. To qualify for Section 179 treatment the asset must be depreciable tangible property or computer software which was acquired for use in a trade or business. Assets must be placed in service prior to January 1, 2015.</li></ul><p>Other key business provisions that have been extended include:</p><ul><li>The research credit has been extended.</li><li>The Work Opportunity Credit has been extended for employees who began work for the employer before January 1, 2015.</li><li>For corporations that converted from C to S status, the built-in gain recognition period is five years.</li><li>For S corporations making charitable donations of appreciated property, a shareholder&#39;s basis is adjusted by the cost basis of the asset instead of the appreciated value.</li><li>Certain excise tax credits for alternative fuels have been extended.</li></ul><p>Key individual provisions that have been extended include:</p><ul><li>The deduction for state and local income taxes in lieu of deducting state income taxes.</li><li>The above-the-line deduction for qualifying tuition and fees for post-secondary education.</li><li>The $250 above-the-line deduction for teachers&#39; classroom expenses.</li><li>The exclusion from income from cancellation of mortgage debt on a principal residence up to $2 million.</li><li>The ability to contribute required minimum distributions from IRAs, up to $100,000, directly to charitable organizations. These distributions are not taxable.</li></ul><p>If you have any questions concerning how these and other provisions affect your tax situation, please contact your KSM advisor.</p>jcody@ksmcpa.com (Jenina Cody)Wed, 17 Dec 2014 21:21:00 GMTProfitable Solutions for Nonprofits - Winter 2015http://www.ksmcpa.com/news-blog/profitable-solutions-for-nonprofits-winter-2015
<p><span style="font-weight: 700;"><span style="font-size: 18px;">In This Issue:</span></span></p><div><a href="http://www.ksmcpa.com/building-a-foundation-for-effective-endowment-management" ><span style="font-weight: 700;">Building a Foundation for Effective Endowment Management</span></a><br /><span style="line-height: 1.4em;">Overseeing a nonprofit&rsquo;s endowment fund is one of the most important roles for the board of directors. A strong investment committee, made up of board members and staff, will not only ensure the continued health of the endowment and the organization, but also attract other donors looking for good stewards for their contributions. Effective endowment management lies in the following building blocks.</span><span style="line-height: 1.4em;">&nbsp;</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;<a href="http://www.ksmcpa.com/scott-a-schuster" >Scott A. Schuster</a>, CPA</span></div><p><br /><a href="http://www.ksmcpa.com/look-before-determining-executive-compensation" ><span style="font-weight: 700;">Look Before Determining Executive Compensation</span></a><br /><span style="line-height: 1.4em;">When a nonprofit sets the salary for an executive director or other individual key to the organization, the board of directors wants to make sure It is paying what&rsquo;s necessary to attract or retain the most qualified, capable individual for the position; but that is not the only consideration that should be on the radar screen.&nbsp;</span><span style="line-height: 1.4em;">&nbsp;</span><span style="line-height: 1.4em; font-size: 12px;"><font color="#9a9999">By&nbsp;<a href="http://www.ksmcpa.com/d-mark-barnhart" >D. Mark Barnhart</a>, CPC, CERS</font></span></p><div><p><a href="http://www.ksmcpa.com/how-to-account-for-special-events" ><span style="font-weight: 700;">How to Account for Special Events</span></a><br /><span style="line-height: 1.4em;">More and more nonprofits are turning to special events as a major source for generating funds. As if event planning is not complicated enough, organizations also must take care to properly present the associated revenues and costs in their financial reporting.&nbsp;</span><span style="line-height: 1.4em;">&nbsp;</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">By Jessica Boicourt</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">, CPA, MBA</span></p></div><p><span style="font-weight: 700;"><a href="http://www.ksmcpa.com/newsbits-profitable-solutions-for-nonprofits-winter-2015" >Newsbits</a></span><br /><span style="line-height: 1.4em;">A study from Nonprofit Technology Network and M+R Strategic Services found that donors made more online contributions to U.S. nonprofits in 2013 than ever before, with more than 5.5 million total gifts and nearly $325 million raised. Online revenues and online gifts increased by 14 percent last year. The average revenue per 1,000 fundraising messages delivered was $17, or 1.7 cents per message. Monthly giving accounted for 16 percent of all online revenue in 2013.</span></p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s&nbsp;<em>Profitable Solutions for Nonprofits</em>&nbsp;is a quarterly newsletter that focuses on tax and accounting issues for the not-for-profit industry, brought to you by&nbsp;<a href="http://www.ksmcpa.com/not-for-profit" >KSM&#39;s Not-for-Profit Services Group</a>.</p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p>ameyer@ksmcpa.com (Amanda Meyer)Tue, 16 Dec 2014 16:00:00 GMTLitigation Services Bulletin - Winter 2014http://www.ksmcpa.com/news-blog/litigation-services-bulletin-winter-2014
<p class="p1"><span style="font-size: 18px; font-weight: 700; line-height: 1.4em;">In This Issue:</span></p><p><a href="http://www.ksmcpa.com/do-lost-profits-represent-diminished-value-or-double-recovery" ><span style="font-weight: 700;">Do Lost Profits Represent Diminished Value or Double Recovery?&nbsp;</span></a><br /><span style="line-height: 1.4em;">After a business collapsed because of misrepresentations from the defendant, the court held a hearing on damages. What makes the case noteworthy is the court&rsquo;s acceptance of the plaintiff expert&rsquo;s methodology: &ldquo;identifying&rdquo; lost profits as part of the total financial loss he calculated.&nbsp;</span></p><p><span style="font-weight: 700; line-height: 1.4em;"><a href="http://www.ksmcpa.com/court-extols-expert-s-valuation-and-legal-acumen" >In Buyout, Court Extols Expert&rsquo;s Valuation and Legal Acumen</a></span><br /><span style="line-height: 1.4em;">A New York appeals court recently affirmed a stock valuation that occurred in the context of an oppressed shareholder suit. While the appeals court decision is short, the underlying 2011 trial court decision provides invaluable insight into the factors courts consider when assessing the qualification and performance of appraisers. Solid valuation credentials, a thorough work product, and a demonstrated knowledge of valuation-related legal principles carried the day.&nbsp;</span></p><p><span style="font-weight: 700;"><a href="http://www.ksmcpa.com/court-clarifies-panduit-test-s-role-in-lost-profits-calculation" >Court Clarifies&nbsp;<em>Panduit&nbsp;</em>Test&rsquo;s Role in Lost Profits Calculation</a>&nbsp;</span><br /><span style="line-height: 1.4em;">What is the interplay between &ldquo;but for&rdquo; causation, the&nbsp;</span><em style="line-height: 1.4em;">Panduit&nbsp;</em><span style="line-height: 1.4em;">test, and the concept of reconstructing the market? In a recent patent case, a court sorted out this issue when it reviewed an expert&rsquo;s lost profits calculation.&nbsp;</span></p><p><span style="font-weight: 700; line-height: 1.4em;"><a href="http://www.ksmcpa.com/court-s-mixed-message-on-sufficient-and-credible-financial-evidence" >Court&rsquo;s Mixed Message on &lsquo;Sufficient and Credible&rsquo; Financial Evidence</a></span><br /><span style="line-height: 1.4em;">What quantity and quality of evidence does a trial court need to make a meaningful valuation of a business? This was the central question in a hard-fought divorce proceeding that featured questionable financial records, problematic expert testimony, and highly polarized value determinations.&nbsp;</span></p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s&nbsp;<em>Litigation Services Bulletin</em>&nbsp;is a quarterly newsletter that focuses on the latest developments in litigation services and financial damages expert consulting, brought to you by&nbsp;<a href="http://www.ksmcpa.com/litigation-services" >KSM&#39;s Litigation Services Group</a>.&nbsp;</p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p><p>&nbsp;</p>ameyer@ksmcpa.com (Amanda Meyer)Mon, 15 Dec 2014 14:58:00 GMTValuations Services Bulletin - Winter 2014http://www.ksmcpa.com/news-blog/valuations-services-bulletin-winter-2014
<p><span style="font-size: 18px; font-weight: 700; line-height: 1.4em;">In This Issue:</span></p><div><a href="http://www.ksmcpa.com/court-drills-down-on-no-sale-assumption" ><span style="font-weight: 700;">Court Drills Down on No-Sale Assumption for Dental Practice DLOM&nbsp;</span></a></div><div>A recent nasty divorce case centering on the husband&rsquo;s dental practice offers up a number of interesting valuation questions, including whether the final valuation was subject to a marketability discount (DLOM) and whether there was enterprise goodwill.&nbsp;<br />&nbsp;</div><p><a href="http://www.ksmcpa.com/valuation-confirms-salability-of-unique-restaurant-s-goodwill" ><span style="font-weight: 700;">Valuation Confirms Salability of &lsquo;Unique&rsquo; Restaurant&rsquo;s Goodwill&nbsp;</span></a><br /><span style="line-height: 1.4em;">What a difference a court makes! A divorce case involving a successful restaurant made news several months ago when the state Court of Appeals extended the scope of personal goodwill to businesses other than professional partnerships, requiring the trial court to exclude the value of the husband&rsquo;s personal goodwill from its calculation.</span></p><p><a href="http://www.ksmcpa.com/delaware-chancery-adopts-unfamiliar-dccf-methodology" ><span style="font-weight: 700;">Delaware Chancery Adopts &lsquo;Unfamiliar&rsquo; DCCF Methodology&nbsp;</span></a><br /><span style="line-height: 1.4em;">Unusual circumstances require measures of the same order. The Delaware Court of Chancery regularly uses the discounted cash flow (DCF) method in statutory appraisal actions, but in a recent case that was not feasible.&nbsp;</span></p><div><div><a href="http://www.ksmcpa.com/in-buyout-court-extols-expert-s-valuation-and-legal-acumen" ><span style="font-weight: 700;">In Buyout, Court Extols Expert&rsquo;s Valuation and Legal Acumen</span></a></div><div>A New York appeals court recently affirmed a stock valuation that occurred in the context of an oppressed shareholder suit. While the appeals court decision is short, the underlying 2011 trial court decision provides invaluable insight into the factors courts consider when assessing the qualification and performance of appraisers.&nbsp;<br />&nbsp;</div><div><a href="http://www.ksmcpa.com/court-spotlights-lack-of-control-in-oil-and-gas-interest-valuation" ><span style="font-weight: 700;">Court Spotlights Lack of Control in Oil and Gas Interest Valuation&nbsp;</span></a></div><div>In a nasty battle over trust assets, the feuding beneficiaries focused their attention on the valuation of oil and gas interests the trust owned. A recent appeals court decision explores issues having to do with the proper methodology to establish the assets&rsquo; fair market value and the appropriate way to account for indirect and fractional ownership and lack of marketability. The court&rsquo;s discount rate raises more questions.&nbsp;</div></div><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s&nbsp;<em>Valuation Services Bulletin&nbsp;</em>is a quarterly newsletter that focuses on&nbsp;the latest developments affecting business litigation, marital dissolution and estate and gift tax, brought to you by KSM&#39;s&nbsp;<a href="http://www.ksmcpa.com/valuations" >Valuations Services Group</a>.</p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p><p>&nbsp;</p>ameyer@ksmcpa.com (Amanda Meyer)Fri, 12 Dec 2014 17:30:00 GMTNew FATCA Withholding Ruleshttp://www.ksmcpa.com/news-blog/new-fatca-withholding-rules
<p>The Foreign Account Tax Compliance Act (FATCA) imposes a new layer of withholding rules on U.S. persons making <em><u>payments of U.S. source income to foreign entities</u></em>. The FATCA withholding rules require a 30% nonrefundable withholding tax on certain payments of U.S. source income to foreign entities that fall within specifically defined categories. Payors of U.S. source income to foreign entities need to obtain the new Form W-8BEN-E from the foreign payee in order to document the payee&rsquo;s FATCA status and substantiate exemptions from this withholding obligation.&nbsp;</p><p><span style="line-height: 1.4em;">The requirement to document the status of each payee (U.S. versus foreign) is not a new requirement and was previously satisfied using the Form W-9 (for U.S. individuals and U.S. entities) or Form W-8BEN (for foreign individuals and foreign entities). The documentation procedures for U.S. persons and foreign individuals has not changed, and the Forms W-9 and W-8BEN are still used. However, the Form W-8BEN is no longer used for payments to foreign entities. The FATCA obligations now require U.S. payors to obtain the Form W-8BEN-E (or other W-8 series form if appropriate) from payees that are foreign entities.&nbsp;</span></p><p><strong><u style="line-height: 1.4em;">FATCA Categories</u></strong></p><p><span style="line-height: 1.4em;">All foreign payees will be classified as either a foreign financial institution (FFI) or non-financial foreign entity (NFFE). FFIs include (but are not limited to): &nbsp;</span></p><ul><li><span style="line-height: 1.4em;">Depository institutions (banks)</span></li><li><span style="line-height: 1.4em;">Custodial institutions (mutual funds)</span></li><li><span style="line-height: 1.4em;">Investment entities (hedge funds or private equity funds)</span></li><li><span style="line-height: 1.4em;">Insurance companies that offer cash value products or annuities (typically life insurance companies)</span></li></ul><p><span style="line-height: 1.4em;">NFFEs are foreign entities that are not FFIs.&nbsp;</span></p><p><span style="line-height: 1.4em;">Once the foreign payee is determined to be either an FFI or NFFE, then the categories within each classification must be determined. A description of the most common types of entities in each category are provided below along with the FATCA withholding obligation associated with each category.</span></p><p><strong><u style="line-height: 1.4em;">Action Steps</u></strong></p><p><span style="line-height: 1.4em;">If making payments of U.S. source passive income to foreign entities, the following must be done:</span></p><ol><li><span style="line-height: 1.4em;">Determine who is being paid (foreign or U.S. person)</span></li><li><span style="line-height: 1.4em;">Get documentation to support that conclusion (either a W-9 or W-8 form)</span></li></ol><p style="margin-left: 40px;"><span style="line-height: 1.4em;">- If paying a foreign entity, get an updated W-8BEN-E that confirms the payee&rsquo;s FATCA status. If the payee is a participating FFI, check the published monthly list of participating FFIs to confirm their status.&nbsp;</span><br /><br /><span style="line-height: 1.4em;">- Determine (based on the FATCA status) if it is necessary to withhold the 30% FATCA obligation. If not, determine if other withholding rules would apply. It is important to note that payments exempt from FATCA withholding are still subject to the long-standing withholding rules under Internal Revenue Code Sections 1441 through 1446.</span></p><p>If you (or a member of your consolidated group) are considered an FFI or NFFE, and such foreign entity is receiving payments of U.S. source income subject to FATCA withholding, the following must be done to ensure that you are registered and in compliance with FATCA:&nbsp;</p><ol><li><span style="line-height: 1.4em;">FFIs need to register on the FATCA website and sign the FFI agreement. If they are in a Model 1 country, they must do so by 12/31/14. If they are in a Model 2 country or a country with no IGA, they must do so immediately.&nbsp;</span></li><li><span style="line-height: 1.4em;">Passive NFFEs (defined below) need to determine which category of NFFE they will be.<br /><br /><span style="line-height: 1.4em;">- A passive direct reporting NFFE (defined below) needs to register on the FATCA website and report their substantial direct and indirect U.S. owners on Form 8966 by March 31.<br />&nbsp;</span></span><br /><div><span style="line-height: 1.4em;">- A passive indirect reporting NFFE (defined below) must list their substantial direct and indirect U.S. owners on the W-8BEN-E they provide to potential withholding agents.&nbsp;</span><br />&nbsp;</div></li><li><span style="line-height: 1.4em;">There is no action required with respect to active NFFEs (defined below).</span></li></ol><p><span style="line-height: 1.4em;">The FATCA registration website can be found at&nbsp;</span><a href="https://sa.www4.irs.gov/fatca-rup/" style="line-height: 1.4em;">https://sa.www4.irs.gov/fatca-rup/</a>.</p><p>The official FFI list can be found at&nbsp;<a href="http://www.irs.gov/Businesses/Corporations/FATCA-Foreign-Financial-Institution-List-Search-and-Download-Tool">http://www.irs.gov/Businesses/Corporations/FATCA-Foreign-Financial-Institution-List-Search-and-Download-Tool</a>.</p><p><strong><u style="line-height: 1.4em;">Common FATCA Entity Types</u></strong></p><ul><li><em>Foreign Financial Institution (FFI):</em><br /><br /><span style="line-height: 1.4em;">- Exempt FFI: Exempt FFIs include most governmental entities, most non-profit organizations, certain small or local financial institutions, and certain retirement entities.&nbsp;</span><strong style="line-height: 1.4em;">No FATCA withholding is required.</strong><br /><br /><span style="line-height: 1.4em;">- Participating FFI: FFIs that have registered with the IRS using the online registration or through filing a Form 8957. They appear on the official FFI list (that is issued monthly) with a valid Global Intermediary Number (GIIN).&nbsp; Participating FFIs have signed an FFI agreement to provide the IRS with information about U.S. account holders (name, identifying number, address, maximum balance, etc.). FFIs that are in a country that has signed a Model 2 Intergovernmental Agreement (IGA) are also included as a participating FFI.&nbsp;</span><strong style="line-height: 1.4em;">No FATCA withholding is required.&nbsp;</strong><br /><br /><span style="line-height: 1.4em;">- Nonparticipating FFI: FFIs that do not register with the IRS and </span><strong style="line-height: 1.4em;">are subject to a 30% withholding tax </strong><span style="line-height: 1.4em;">on all payments of U.S. sourced income that is fixed or determinable, annual or periodic income (generally passive income such as interest, dividends, rents, royalties, etc.). &nbsp;</span><br /><br /><span style="line-height: 1.4em;">- Deemed Compliant FFI: Deemed compliant FFIs include certain local banks, qualified collective investment vehicles, restricted funds, retirement plans, FFIs with only low value accounts, and FFIs that are in a country that has signed a Model 1 Intergovernmental Agreement (IGA).&nbsp;</span><strong style="line-height: 1.4em;">No FATCA withholding is required. &nbsp;&nbsp;</strong></li></ul><ul><li><em>Non-Financial Foreign Entity (NFFE):</em><br /><br /><span style="line-height: 1.4em;">- Excepted NFFE: Excepted NFFEs include publicly traded companies and their affiliates, certain entities organized in U.S. territories, and certain non-financial entities (holding companies, treasury centers, etc.).&nbsp;</span><strong style="line-height: 1.4em;">No FATCA withholding is required.&nbsp;</strong><br /><br /><span style="line-height: 1.4em;">- Active NFFE: An Active NFFE is an NFFE where less than 50% of its gross income for the preceding calendar year is passive type income and less than 50% of its assets for the preceding calendar year are assets that generate passive type income.&nbsp;</span><strong style="line-height: 1.4em;">No FATCA withholding is required.&nbsp;</strong><br /><br /><span style="line-height: 1.4em;">- Passive NFFE: A passive NFFE is an NFFE that isn&rsquo;t excepted or active. It could fall into three different categories:&nbsp;</span></li></ul><ol style="margin-left: 40px;"><li><span style="line-height: 1.4em;">​</span><span style="line-height: 1.4em;">Direct Reporting NFFE:&nbsp;A direct reporting NFFE registers with the IRS and gets a GIIN number. It reports its direct or indirect substantial U.S. owners on Form 8966.&nbsp;</span><strong style="line-height: 1.4em;">No FATCA withholding is required.</strong></li><li><span style="line-height: 1.4em;">Passive indirect reporting NFFE:&nbsp;An NFFE that does not directly report its U.S. owners to the IRS, but does report its U.S. owners on the W-8BEN-E.&nbsp;</span><strong style="line-height: 1.4em;">No FATCA withholding is required.</strong></li><li><span style="line-height: 1.4em;">Passive non-reporting NFFE: A passive NFFE that does not report its direct or indirect substantial U.S. owners (directly or indirectly). These NFFEs </span><strong style="line-height: 1.4em;">are subject to a 30% withholding tax </strong><span style="line-height: 1.4em;">on all payments of U.S. source income that is fixed or determinable, annual or periodic income (generally passive income such as interest, dividends, rents, royalties, etc.).&nbsp;</span></li></ol><div><span class="MPStyle_BlogAuthor"><marketpath:token alignment="null" id="0e25fcbe-146d-4672-87c4-e298ee8ffe03" settings="width:96;height:96" type="content"></marketpath:token></span></div>jcody@ksmcpa.com (Jenina Cody)Fri, 12 Dec 2014 14:20:00 GMTDriver Pay – The Pay Rate is One Factor in Total Compensationhttp://www.ksmcpa.com/news-blog/driver-pay-the-pay-rate-is-one-factor-in-total-compensation
<p>Several months ago <a href="http://www.ksmta.com/">KSM Transport Advisors</a> (KSMTA) published a blog post entitled &ldquo;<a href="http://www.ksmta.com/trucking-profitability-insights/driver-recruiting-is-a-marketing-effort">Driver Recruiting is a Marketing Effort</a>.&rdquo; In the post, <a href="http://www.ksmta.com/david-roush">David Roush</a>, president of KSMTA, defined the &ldquo;product&rdquo; carriers offer drivers as the package of tangibles and intangibles the driver perceives he or she is receiving from the carrier. This article builds on that foundation and focuses on the mutually beneficial intangibles that provide monetary value to both the driver and the carrier.</p><p>Today, the trucking industry and the shipping public are at a crossroads when it comes to attracting and keeping qualified, productive drivers. The industry has experienced several driver pay rate increases in recent months and that trend is expected to continue in the foreseeable future. Gordon Klemp, publisher of the <a href="http://natlsrvy.com/24722/index.html">National Survey of Driver Wages</a> (NSDW) recently stated, &ldquo;The changes we have seen in Q3 represent a rate of change for dry vans, which is a factor of two larger than any quarter in the 19 years we have published the NSDW.&rdquo;</p><p><span style="line-height: 1.4em;">The &ldquo;rate&rdquo; of pay is what attracts drivers in the hiring process; however, there are other factors within the carrier&rsquo;s control that influence the gross wages earned by the driver. These factors are mutually beneficial and provide the driver the best future and the carrier the best chance to retain high quality drivers. There are many factors that directly or indirectly influence the driver&rsquo;s total compensation and job satisfaction besides the &ldquo;per mile&rdquo; rate such as the following:&nbsp;</span></p><p><strong>1)&nbsp;&nbsp;&nbsp;&nbsp; </strong><strong>Reliable, Well Maintained Equipment</strong></p><ul><li style="margin-left: 0.75in;">Keeping tractors and trailers in top shape goes a long way to keeping the driver productive without unforeseen delays and service failures; maximizing the driver&rsquo;s compensation.</li><li style="margin-left: 0.75in;">A well designed maintenance program allows the carrier to minimize the total cost of asset ownership.</li></ul><p><strong>2)&nbsp;&nbsp;&nbsp;&nbsp; </strong><strong>Driver-Friendly Freight</strong></p><ul><li style="margin-left: 0.75in;">Do not underestimate the impact of the loading and unloading experience in shaping the driver&rsquo;s view of his or her job.</li><li style="margin-left: 0.75in;">Work with shippers and receivers to minimize the time and hassle involved; encourage drop trailers where the weekly turns provide an economic benefit.</li><li style="margin-left: 0.75in;">It is better for all parties if the driver is paid for driving rather than being paid for not driving (loading/unloading, extra stops, layover, etc.).</li></ul><p><strong>3)&nbsp;&nbsp;&nbsp;&nbsp; </strong><strong>Well Designed, Optimized Freight Network</strong></p><ul><li style="margin-left: 0.75in;">Drivers like predictability and consistency in their job.</li><li style="margin-left: 0.75in;">The driver&rsquo;s total pay is maximized if he or she keeps moving.</li><li style="margin-left: 0.75in;">An optimized network allows for minimal delay between loads, an opportunity to pre-book the best loads in advance, and loads that provide the best overall productivity for the driver and margins for the company.</li><li style="margin-left: 0.75in;">It is much easier for carriers to plan for driver time off.</li></ul><p><strong>4)&nbsp;&nbsp;&nbsp;&nbsp; </strong><strong>Comprehensive Compensation Package</strong></p><ul><li style="margin-left: 0.75in;">Evaluate the total pay opportunity for the driver; not just the mileage pay rate.</li><li style="margin-left: 0.75in;">Develop meaningful, manageable, and measurable Pay-for-Performance factors to supplement the base pay and reward results that improve the carriers operating metrics and margins.</li><li style="margin-left: 0.75in;">Consider guarantees or minimums (proper implementation of the first three points above will help with being able to provide guarantees without a great deal of risk or downside).</li></ul><p>It may be necessary to increase the base pay rates to attract and hire new drivers in the future but do not underestimate the impact of maximizing compensation by providing intangibles that yield a higher paycheck for the driver and increased margins for the carrier.</p><div><marketpath:token alignment="null" id="382b8473-28df-4e77-b31d-8d32c9b93712" settings="width:96;height:96" type="content"></marketpath:token></div>ameyer@ksmcpa.com (Amanda Meyer)Tue, 25 Nov 2014 19:11:00 GMTPotential Delay of New Revenue Recognition Standardhttp://www.ksmcpa.com/news-blog/potential-delay-of-new-revenue-recognition-standard
<p>A Transition Source Group (TRG) has been created by the Financial Accounting Standards Board (FASB) and has been charged with informing the FASB about potential implementation issues regarding <a href="http://www.fasb.org/cs/ContentServer?pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176164076069" target="_blank">Accounting Standards Update (ASU) 2014-09 <em>Revenue from Contracts with Customers</em></a>.</p><p>At its October meeting, the TRG discussed requests by stakeholders for deferral of the effective date of the ASU. Currently, the ASU is effective Jan. 1, 2018 for nonpublic, calendar year entities.</p><div>The FASB plans to perform site visits and will decide in the second quarter of 2015 if deferral of the implementation date is needed.<br /><br /><span class="MPStyle_BlogAuthor blog-author"><marketpath:token alignment="null" id="bcf042ff-56d2-4027-a355-528f73bb9208" settings="width:96;height:96" type="content"></marketpath:token></span></div>ameyer@ksmcpa.com (Amanda Meyer)Mon, 24 Nov 2014 15:44:00 GMTState & Local Tax Update: 11/13/14http://www.ksmcpa.com/news-blog/state-local-tax-update-11-13-14
<p><span style="font-family: Arial; font-size: large; font-weight: bold; line-height: normal;">Personal Property Tax and 263(a)</span></p><div>For companies taking advantage of 263(a) rules for federal tax purposes, it is important to remember that for personal property tax purposes, there may not be a de minimis safe harbor application. For income tax purposes, it may be acceptable to expense individual fixed assets costing $5,000 or less; for personal property tax returns, these assets may still be considered assessable and taxable. If you choose to take advantage of the new 263(a) rules and expense assets costing $5,000 or less, you may want to consider keeping a second set of records for personal property reporting.</div><div>&nbsp;</div><div>As a reminder, some states exempt personal property; however, many states do impose a personal property tax, and due dates vary by state. Now is a good time to review your asset listing to ensure all personal property tax filing deadlines are met.</div><div>&nbsp;</div><div>Please contact your KSM advisor with any questions regarding the effect of Section 263(a) and personal property reporting.</div><div style="margin-top: 10px; margin-bottom: 6px; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(204, 204, 204);">&nbsp;</div><p><span style="font-weight: 700;">Indiana Rules on Taxability of Web Hosting and Web Design &nbsp;</span><br /><span style="line-height: 1.4em;">Based on documentation indicating the true nature of the transaction as services, Web-design and Web-hosting services were treated as nontaxable for Indiana sales and use tax purposes. (For more information, see <a href="http://www.in.gov/legislative/iac/20140924-IR-045140365NRA.xml.html" target="_blank">LOF 04-20140207</a>.)</span></p><p><span style="font-weight: 700;">California Issues Guidance on LLC Member Filing Requirements &nbsp;</span><br /><span style="line-height: 1.4em;">CA FTB Legal Ruling 2014-01 outlines various scenarios in which an entity holding a membership interest in an LLC is required to file in California. The Ruling also outlines when the member is subject to the LLC fee and tax, based on the activities of the LLC that are attributed to it.&nbsp;(For more information, see <a href="https://www.ftb.ca.gov/law/rulings/active/lr14_01.pdf" target="_blank">Legal Ruling 2014-01</a>.)</span></p><p><span style="font-weight: 700;">California Issues Guidance on Sales Factor Sourcing Rules &nbsp;</span><br />California has provided guidance on how to apply the new single-sales factor and market-based sourcing rules for tax years beginning 1/1/13. The changes to sourcing sales of other than tangible personal property are addressed, with examples of how market assignment will impact the numerator.&nbsp;<span style="line-height: 1.4em;">(For more information, see&nbsp;</span><a href="https://www.ftb.ca.gov/businesses/Sales_Factor.shtml" target="_blank"><span style="line-height: 1.4em;">Sales Factor Sourcing Rules</span></a><span style="line-height: 1.4em;">.)</span></p><p><span style="font-weight: 700;">California Sets Doing Business Thresholds for 2014&nbsp;</span><br />A taxpayer will be considered doing business in California if he or she has sales of $529,562, property of $52,956, or payroll of $52,956.<span style="line-height: 1.4em;">&nbsp;</span><br /><br /><span style="font-weight: 700;">California Issues Guidance on New Like-Kind Exchange Reporting Rules&nbsp;</span><br /><span style="line-height: 1.4em;">California issued a Public Service Bulletin to assist taxpayers with questions on the upcoming changes to reporting requirements for like-kind exchanges involving a California property. The bulletin outlines the new rules effective 1/1/14 and provides some guidance on Form 3840, which should be released before year end.&nbsp;</span><span style="line-height: 1.4em;">(For more information, see&nbsp;</span><span style="line-height: 1.4em;">t</span>he <a href="https://www.ftb.ca.gov/aboutFTB/Public_Service_Bulletins/2014/27_09292014.shtml" target="_blank">Public Service Bulletin</a><span style="line-height: 1.4em;">.)</span></p><p><span style="font-weight: 700;">Illinois Provides Guidance on Sales Factor Sourcing for Cloud Computing &nbsp;</span><br />In IT-14-0003-PLR , the Illinois Department of Revenue indicated revenue from cloud computing was a service and not the sale of tangible personal property, thus it was to be sourced using the service sourcing rules, using receipt as the primary location. Based on those rules, in situations where the taxpayer could not determine where the customer is accessing the services, the revenue would be sourced to where the customer ordered the services. If that cannot be determined, the billing address is used. In addition, the throwout rule would be a consideration if the taxpayer was not taxable in the state in which the service is deemed to be received.&nbsp;(For more information, see&nbsp;<a href="http://cl.exct.net/?qs=0cd09f67e046d00c94c4c6733a5ac55e496090f505a9b811ec875720403f65eb31c485acc2271488" style="font-family: Arial; font-size: 13px; line-height: normal;" title="IT-14-0003-PLR">IT-14-0003-PLR</a>.)</p><div><span class="MPStyle_BlogAuthor"><marketpath:token alignment="null" id="f7067c08-e7a6-4997-b3b5-eee7ef9d96ad" settings="width:96;height:96" type="content"></marketpath:token></span></div>ameyer@ksmcpa.com (Amanda Meyer)Thu, 13 Nov 2014 19:11:00 GMTAnnual Survey Finds Hoosier Manufacturers Confident, Poised for Growthhttp://www.ksmcpa.com/news-blog/annual-survey-finds-hoosier-manufacturers-confident-poised-for-growth
<p align="center"><strong><em>Katz, Sapper &amp; Miller&rsquo;s Indiana Manufacturing Survey is authored by&nbsp;</em></strong><strong style="line-height: 1.4em;"><em>IU Kelley School of Business experts in partnership with Conexus Indiana, Indiana Manufacturers Association</em></strong></p><p>INDIANAPOLIS, Ind. &ndash; Katz, Sapper &amp; Miller <a href="http://www.ksmcpa.com/2014-indiana-manufacturing-survey-results" target="">released its annual survey of Indiana manufacturers</a> today, authored by faculty from the IU Kelley School of Business at Indianapolis.&nbsp; Indiana is the most manufacturing-dependent state in the nation, and the industry continues a strong rebound from the Great Recession; however, the survey warns that growth could be derailed by regulatory costs and workforce weaknesses.</p><p>&ldquo;Manufacturing is Indiana&rsquo;s economic engine,&rdquo; said Steve Jones, an associate professor of finance and chair of the IU Kelley School of Business Indianapolis Evening MBA Program, who co-authored the survey.&nbsp; &ldquo;So we&rsquo;re pleased to report that the mood of our manufacturing employers is upbeat and bullish on investment &ndash; but they also have real worries about rising energy and regulatory costs, and about Indiana&rsquo;s workforce.&rdquo;</p><p>&ldquo;Indiana manufacturing is strong today, but concerned for tomorrow,&rdquo; agreed Scott Brown, partner-in-charge of Katz, Sapper &amp; Miller&rsquo;s Manufacturing and Distribution Services Group. &nbsp;&ldquo;This survey shows a higher percentage of manufacturers than ever before exploring new plants in Indiana, but it also registers the highest number yet among manufacturers planning to outsource work overseas.</p><p>&ldquo;The future of manufacturing can be made in Indiana &ndash; or we can be spectators, depending on the actions we take now,&rdquo; Brown continued.&nbsp; &ldquo;The survey lays out our priorities: educating more skilled workers, rationalizing our tax and regulatory structure, and addressing high energy costs.&rdquo;&nbsp;</p><p><a href="http://www.ksmcpa.com/2014-indiana-manufacturing-survey-results" target=""><img align="" alt="2014 Indiana Manufacturing Survey Results" height="2578" src="https://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/orig/6d5eff3e-58df-48ca-8bfb-c09606c0feed/manufacturing-survey-infographic-2014.png" style="margin: 0px; border: 0px currentColor; width: 590px; height: 2578px;" title="Access the 2014 Survey" width="590" /></a></p><script>$( document ).ready(function() {
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</textarea><br />&nbsp;</div></div><p>Key findings from the 2014 survey include:</p><p><strong>Manufacturers are increasingly confident and ready to grow:</strong></p><ul><li><span style="line-height: 1.4em;">47 percent of respondents rated their company&rsquo;s financial performance as &ldquo;healthy,&rdquo; the same percentage that answered &ldquo;challenged&rdquo; in 2009 (only 17 percent answered &ldquo;challenged&rdquo; this year).</span></li><li><span style="line-height: 1.4em;">Overall, 77 percent answered either &ldquo;stable&rdquo; or &ldquo;healthy&rdquo; to describe their financial performance.</span></li><li><span style="line-height: 1.4em;">An almost identical number &ndash; 78 percent &ndash; were similarly upbeat about the overall economy, predicting either moderate or strong growth over the next two years.</span></li><li><span style="line-height: 1.4em;">This positive outlook translates into expansion plans: 20 percent of those surveyed hope to open a new manufacturing facility in Indiana over the next two years (more than double the response from last year).</span></li></ul><p><strong>This optimism is dampened by tax, regulatory and energy costs:</strong></p><ul><li><span style="line-height: 1.4em;">A cluster of public sector issues (federal and state) drive concerns about the cost and viability of manufacturing &ndash; healthcare regulations (67 percent), infrastructure (66 percent), corporate and property tax policy (66 percent each) were all rated &ldquo;extremely important&rdquo; by at least two-thirds of respondents.</span></li><li><span style="line-height: 1.4em;">Energy costs (particularly electricity) were also seen as a negative by most manufacturers (associated with stricter federal environmental regulations and greenhouse gas mandates).</span></li></ul><p><strong>Hoosier manufacturers are taking advantage of global supply chains:</strong></p><ul><li><span style="line-height: 1.4em;">Reflecting the recent influx of foreign direct investment in Indiana manufacturing, 12 percent of survey responses came from foreign-owned companies, representing the more than 140,000 Hoosier workers employed by 700-plus such firms across the state.</span></li><li><span style="line-height: 1.4em;">While the number of responding companies exporting products directly overseas is modest, the majority (52 percent) say they supply components or unfinished goods that are eventually sold internationally.</span></li></ul><p><strong>Workforce shortages pose an immediate threat and future crisis:</strong></p><ul><li><span style="line-height: 1.4em;">89 percent of manufacturers are experiencing an immediate shortage of skilled production workers, and 65 percent rate the shortage as &ldquo;moderate&rdquo; or &ldquo;serious.&rdquo;</span></li><li><span style="line-height: 1.4em;">Strong majorities of employers are also having difficulty finding production support and scientific/engineering talent.</span></li><li><span style="line-height: 1.4em;">Companies are responding by working existing employees harder (overtime) and expanding internal training programs &ndash; a challenge to Indiana&rsquo;s educational system to supply more job-ready workers.</span></li></ul><p><span style="line-height: 1.4em;">&ldquo;Every year we ask about manufacturers&rsquo; top priorities for modernizing their operations,&rdquo; said Mark Frohlich, an associate professor of operations management at IU Kelley School of Business and the survey&rsquo;s co-author.&nbsp; &ldquo;This is the first survey with &lsquo;human resource development&rsquo; as the number one area, ahead of any investments in equipment or technology &ndash; the skill shortage is a reality.&rdquo;</span></p><p>Frohlich added that overtime and temporary labor services aren&rsquo;t sustainable solutions to the workforce challenge, and said that the survey reveals a pressing need for long-term action on a number of issues.</p><p>&ldquo;Manufacturing companies must continue to invest in new technologies and methods to stay globally competitive,&rdquo; he said.&nbsp; &ldquo;But public officials at all levels of government need to continue creating a pro-investment environment with wise tax and regulatory policies, including energy.&nbsp; And Indiana&rsquo;s educators and employers have to work together, to make sure Hoosiers are learning the right skills to thrive in today&rsquo;s high-tech factories.&rdquo;</p><p>Hundreds of Indiana manufacturers responded to the 2014 survey, representing a broad cross-section of the industry: A plurality (38 percent) focus on automotive and industrial equipment manufacturing, with aerospace accounting for another 10 percent, and smaller numbers representing high-tech and healthcare products.&nbsp; Privately held and U.S.-owned firms made up the large majority of responding firms, with average number of employees around 280. In all, one of every five Hoosier workers is employed in manufacturing.</p><p>To view the complete results of the <em>2014 Indiana Manufacturing Survey: Strong for Today, Concerned for Tomorrow</em>, visit <a href="http://www.ksmcpa.com/2014-indiana-manufacturing-survey-results" target="_blank">http://www.ksmcpa.com/2014-indiana-manufacturing-survey-results</a></p><p align="center">###</p><p><strong>About Katz, Sapper &amp; Miller</strong><br />As one of the top 65 CPA firms in the nation, Katz, Sapper &amp; Miller has earned a reputation as a leader in the areas of accounting, tax and consulting services. Founded in 1942, the firm has approximately 300 employees and is headquartered in Indianapolis, Ind. , with offices in Fort Wayne, Ind., and New York. Katz, Sapper &amp; Miller was named one of the &ldquo;Best of the Best&rdquo; accounting firms in the nation by <em>INSIDE Public Accounting </em>magazine and has been recognized by the Indiana Chamber of Commerce as one of the &ldquo;Best Places to Work in Indiana&rdquo; for&nbsp;nine consecutive years. The firm is an independent member of PrimeGlobal, a global association of independent accounting firms. For more information, visit <a href="http://www.ksmcpa.com/">ksmcpa.com</a>.</p><p><strong>About the IU Kelley School of Business</strong><br /><span style="line-height: 1.4em;">The Indiana University Kelley School of Business has been a leader in American business education for more than 90 years. With more than 100,000 living alumni and an enrollment of nearly 8,000 students across two campuses, the Kelley School is among the premier business schools in the country.&nbsp;Kelley Indianapolis, based at IUPUI, is home to a full-time undergraduate program and four graduate programs, including master&rsquo;s programs in accounting and taxation, the Business of Medicine MBA for physicians and the Evening MBA, which is ranked eighth in the country by </span><em style="line-height: 1.4em;">U.S. News and World Report</em><span style="line-height: 1.4em;"> and No. 1 in academic quality by </span><em style="line-height: 1.4em;">Bloomberg Businessweek</em><span style="line-height: 1.4em;">. For more information, visit </span><a href="http://kelley.iupui.edu/" style="line-height: 1.4em;">kelley.iupui.edu</a><span style="line-height: 1.4em;">.</span></p>cdjonlich@ksmcpa.com (Chris Djonlich)Tue, 11 Nov 2014 19:07:00 GMTIRS Announces Retirement Plan Limitations for 2015http://www.ksmcpa.com/news-blog/irs-announces-retirement-plan-limitations-for-2015
<p><span style="line-height: 1.4em;">The Internal Revenue Service (IRS) recently announced the annual Cost-of-Living Adjustments (COLA) for retirement plans and related limitations for the 2015 tax year. Several of the following limits have changed for 2015 compared to the 2014 limits.</span></p><table bgcolor="#ffffff" cellpadding="3" cellspacing="0" class="dashedBorder" style="width: 100%;" width="100%"><tbody><tr><td style="font-family: Arial; font-size: 13px;">&nbsp;</td><td align="right" bgcolor="#ffffff" height="" style="width: 80px; font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="80"><strong><u>2015</u></strong></td><td align="right" bgcolor="#ffffff" height="" style="width: 80px; font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="80"><strong><u>2014</u></strong></td></tr><tr><td align="left" bgcolor="#e9e9e9" height="" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">Social Security Taxable Wage Base</td><td align="right" bgcolor="#e9e9e9" height="" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">$118,500</td><td align="right" bgcolor="#e9e9e9" height="" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">$117,000</td></tr><tr><td style="font-family: Arial; font-size: 13px;">Medicare Taxable Wage Base</td><td align="right" bgcolor="#ffffff" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle">No Limit</td><td align="right" bgcolor="#ffffff" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle">No Limit</td></tr><tr><td align="left" bgcolor="#e9e9e9" height="" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">Compensation (Plan Limit)</td><td align="right" bgcolor="#e9e9e9" height="" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">$265,000</td><td align="right" bgcolor="#e9e9e9" height="" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">$260,000</td></tr><tr><td style="font-family: Arial; font-size: 13px;">Compensation (SEP)</td><td align="right" bgcolor="#ffffff" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle">$600</td><td align="right" bgcolor="#ffffff" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle">$550</td></tr><tr><td align="left" bgcolor="#e9e9e9" height="" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">Defined Benefit Limit (415)</td><td align="right" bgcolor="#e9e9e9" height="" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">$210,000</td><td align="right" bgcolor="#e9e9e9" height="" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">$210,000</td></tr><tr><td style="font-family: Arial; font-size: 13px;">Defined Contribution Limit (415)</td><td align="right" bgcolor="#ffffff" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle">$53,000</td><td align="right" bgcolor="#ffffff" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle">$52,000</td></tr><tr><td align="left" bgcolor="#e9e9e9" height="" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">401(k) and 403(b) Contribution Limit</td><td align="right" bgcolor="#e9e9e9" height="" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">$18,000</td><td align="right" bgcolor="#e9e9e9" height="" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">$17,500</td></tr><tr><td style="font-family: Arial; font-size: 13px;">401(k) and 403(b) Catch Up Contribution Limit<br />(over age 50)</td><td align="right" bgcolor="#ffffff" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle"><br />$6,000</td><td align="right" bgcolor="#ffffff" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle"><br />$5,500</td></tr><tr><td align="left" bgcolor="#e9e9e9" height="" rowcoord="10" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">SIMPLE Contribution Limit</td><td align="right" bgcolor="#e9e9e9" height="" rowcoord="10" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">$12,500</td><td align="right" bgcolor="#e9e9e9" height="" rowcoord="10" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">$12,000</td></tr><tr><td rowcoord="11" style="font-family: Arial; font-size: 13px;">SIMPLE Catch Up Contribution Limit (over age 50)</td><td align="right" bgcolor="#ffffff" rowcoord="11" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle">$3,000</td><td align="right" bgcolor="#ffffff" rowcoord="11" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle">$2,500</td></tr><tr><td align="left" bgcolor="#e9e9e9" height="" rowcoord="12" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">Highly Compensated Employee Definition (prior year)</td><td align="right" bgcolor="#e9e9e9" height="" rowcoord="12" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">$120,000</td><td align="right" bgcolor="#e9e9e9" height="" rowcoord="12" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">$115,000</td></tr><tr><td rowcoord="13" style="font-family: Arial; font-size: 13px;">Maximum Deduction (% of Compensation) P/S and<br />SEP Plans</td><td align="right" bgcolor="#ffffff" rowcoord="13" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle"><br />25%</td><td align="right" bgcolor="#ffffff" rowcoord="13" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle"><br />25%</td></tr><tr><td align="left" bgcolor="#e9e9e9" height="" rowcoord="14" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">IRA Contribution Limit (Traditional and Roth)</td><td align="right" bgcolor="#e9e9e9" height="" rowcoord="14" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">$5,500</td><td align="right" bgcolor="#e9e9e9" height="" rowcoord="14" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">$5,500</td></tr><tr><td rowcoord="15" style="font-family: Arial; font-size: 13px;">IRA Catch Up Contribution Limit (Over Age 50)</td><td align="right" bgcolor="#ffffff" rowcoord="15" style="font-family: Arial; font-size: 13px; white-space: normal;" valign="middle">$1,000</td><td align="right" bgcolor="#ffffff" height="20" rowcoord="15" style="height: 20px; font-family: Arial; font-size: 13px; white-space: normal;" valign="middle" width="">$1,000</td></tr></tbody></table><br /><div style="border-top: 1px solid #ccc; margin: 10px 0 6px;">&nbsp;</div><p style="color: rgb(0, 0, 0); line-height: normal; font-family: Arial; font-size: 13px;"><em>The contents of this post are for informational purposes only. If you have any questions regarding your retirement plan, please contact any of the following members of our <a href="http://www.ksmcpa.com/employee-benefit-plans" >Employee Benefit Plan Services Group</a>.&nbsp;</em></p><p style="color: rgb(0, 0, 0); line-height: normal; font-family: Arial; font-size: 13px;"><a alias="Patrick Brauer" conversion="false" href="http://www.ksmcpa.com/patrick-r-brauer" style="color: purple;" target="_blank" title="Patrick Brauer"><strong>Patrick Brauer</strong></a><br />Partner<br />317.844.4873&nbsp;</p><p style="color: rgb(0, 0, 0); line-height: normal; font-family: Arial; font-size: 13px;"><a alias="Bernadette Fletcher" conversion="false" href="http://www.ksmcpa.com/bernadette-fletcher" style="color: purple;" target="_blank" title="Bernadette Fletcher"><strong>Bernadette Fletcher</strong></a><br />Director<br />317.580.2134&nbsp;</p><p style="color: rgb(0, 0, 0); line-height: normal; font-family: Arial; font-size: 13px;"><a alias="Karen Noel" conversion="false" href="http://www.ksmcpa.com/karen-e-noel" style="color: purple;" target="_blank" title="Karen Noel"><strong>Karen Noel</strong></a><br />Director<br />317.844.4879</p>ameyer@ksmcpa.com (Amanda Meyer)Tue, 11 Nov 2014 02:39:00 GMTCongestion, Infrastructure and Taxationhttp://www.ksmcpa.com/news-blog/congestion-infrastructure-and-taxation
<div><span style="line-height: 1.4em;">During 2013, transportation companies in the United States added more than $9.2 billion in operational costs due solely to congestion on the roads causing delays. The <a href="http://atri-online.org/" target="_blank">American Trucking Research Institute</a> (ATRI) estimates that delays caused the loss of more than 141 million hours of productive driving time during 2013, the equivalent of 51,000 truck drivers sitting idle for the entire year! &nbsp;</span></div><div>&nbsp;</div><div>The ATRI study on congestion broke down the 100 worst bottleneck areas in the country and identified California followed by Texas as the states with the highest congestion costs ($1.7 and $1.1 billion respectively in 2013). When examining the data on a per truck basis, congestion resulted in an average of just over $5,000 per truck in 2013 related to delays on the road. The result of the study points toward a commonly known problem for the transportation industry and the United States as a whole &ndash; infrastructure improvements are needed.</div><div>&nbsp;</div><div>While everyone can agree that the country needs to invest in infrastructure (estimates average the need for $3.6 trillion in infrastructure spending by 2020), how to pay for these projects is up for debate. There are several options that have advantages and disadvantages. One or a combination of these options will be required to fund future infrastructure improvements.</div><ul><li><strong>Higher federal income tax rates</strong> &ndash; This method would spread the cost to every taxpayer in the country by increasing income tax rates specifically for infrastructure funding. The advantage is spreading the cost over a large base of taxpayers. The main disadvantage is this could disproportionately affect the taxpayers since it is not directly linked to the usage of infrastructure.&nbsp;</li></ul><ul><li><strong>Higher fuel excise tax</strong> &ndash; Currently transportation companies pay <marketpath:listarea type="Entries">.24 per gallon of diesel fuel to the federal government in fuel excise tax. Additionally individual citizens pay <marketpath:listarea type="Entries">.18 per gallon on gasoline for their vehicles. Increasing the tax would have the advantage of allowing the heavier users of fuel and the roads to pay a larger share of the burden of replacement. However, there are a few disadvantages as well. First, if this tax is increased, lower and middle-income individuals are disproportionately affected, especially those in areas not served by mass transit systems. A second (and potentially larger) reason to not use this method is that as the fuel economy continues to improve, the collection of excise tax will continue to drop on a per vehicle basis with less fuel consumption needed to cover the same number of miles.</marketpath:listarea></marketpath:listarea></li></ul><ul><li><strong>Per mile tax or implementing congestion pricing</strong> &ndash; An alternative to increasing the excise tax while still basing the tax on usage of the roads would be a per mile tax or charging higher tolls for driving at certain times. A tax of this type would avoid the potential problems down the road of increased fuel efficiency reducing tax collected while maintaining a sense of fairness in the sense that heavier users would pay a larger portion of the tax. A major problem with these methods would be the need to potentially implement an entirely new collection system. Increasing tolls based on time of day also presents a whole new set of challenges for transportation company freight networks. Simply google congestion pricing and you will be presented with hundreds of cases for and against using this methodology. &nbsp;</li></ul><div>The one guarantee is that the United States needs to invest in its transportation infrastructure to alleviate the problems of congestion as the economy continues to grow. How and who will pay will be the true challenge in the coming years.&nbsp;</div><div style="border-top: 1px solid #ccc; margin: 10px 0 6px;"><br /><img align="left" alt="" height="95" src="https://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/43bcdb33-ae59-445f-924a-320e643a6c7c/ben-lyon-final.jpg" style="width:95px;height:95px;margin-top:0px;margin-right:10px;margin-bottom:15px;margin-left:0px;border:0px" title="" width="95" /><span style="line-height: 1.4em; font-weight: 700;">Connect with Ben&nbsp;</span><a href="http://www.linkedin.com/pub/ben-lyon/1a/838/699" target="_blank"><span style="line-height: 1.4em; width: 16px; height: 16px; margin-top: 0px; margin-bottom: 0px;"><img align="" alt="" height="16" src="https://mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/0eefc1a8-fbf9-4f5c-a1dc-c375729ecc79/icon-linkedin.png" style="width: 16px; height: 16px; margin: 0px;" title="Connect with Ben on LinkedIn" width="16" /></span></a><br /><span style="line-height: 1.4em;"><a href="http://www.ksmcpa.com/ben-lyon" >Ben Lyon</a> is a director in Katz, Sapper &amp; Miller&rsquo;s Business Advisory Group&nbsp;</span><span style="line-height: 1.4em;">and a member of the firm&#39;s&nbsp;</span><a href="http://www.ksmcpa.com/transportation" style="line-height: 1.4em;" target="">Transportation Services Group</a><span style="line-height: 1.4em;">. Ben&rsquo;s responsibilities include reviewing financial statements and tax returns, along with advising clients in accounting, reporting and tax-related matters.</span></div><p class="ksm-separator-line">&nbsp;</p>ameyer@ksmcpa.com (Amanda Meyer)Wed, 22 Oct 2014 16:52:00 GMTProfitable Solutions for Nonprofits - Fall 2014http://www.ksmcpa.com/news-blog/profitable-solutions-for-nonprofits-fall-2014
<p><span style="font-weight: 700;"><span style="font-size: 18px;">In This Issue:</span></span></p><div><a href="http://www.ksmcpa.com/tips-for-preventing-fraud-in-an-organization" ><b>Tips for Preventing Fraud in an Organization</b></a><br />When a nonprofit becomes a victim of fraud it does not just hurt the organization&rsquo;s bottom line, but it can also cause devastating damage to the organization&rsquo;s reputation. By implementing some simple controls, nonprofits can help protect themselves from these risks.<span style="line-height: 1.4em;">&nbsp;</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">By John Henne, CPA, CFE, MPA, CISA</span></div><p><a href="http://www.ksmcpa.com/footnotes-tell-a-story-what-constituents-can-glean-from-financial-statements" ><b>Footnotes Tell a Story: What Constituents Can Glean from Financial Statements</b></a><br />When reviewing financial statements, nonprofit board members and managers sometimes make the mistake of focusing solely on bottom-line figures; but financial statements also may include a wealth of information in their disclosures.<span style="line-height: 1.4em;">&nbsp;</span><span style="line-height: 1.4em; font-size: 12px;"><font color="#9a9999">By Anne DeLaney, CPA, MBA</font></span></p><div><a href="http://www.ksmcpa.com/not-all-funds-are-created-equal" ><b>Not All Funds Are Created Equal</b></a><br />Nonprofit organizations typically depend on a variety of funding to keep them alive and well. They need funds to pay their bills, pay their employees and pay for the costs of running their programs. But savvy nonprofits know that not all that&rsquo;s green has equal value and flexibility. Types of funding vary greatly in how they can &mdash; or cannot &mdash; be used<span style="line-height: 1.4em;">.&nbsp;</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">By Jessica Boicort</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">, CPA, MBA</span><br /><p><a href="http://www.ksmcpa.com/newsbits-profitable-solutions-for-nonprofits-fall-2014" ><span style="font-weight: 700;">Newsbits</span></a><br />The Office of Management and Budget (OMB) has streamlined its guidance on grants management, including administrative requirements, cost principles and audit requirements for federal awards. The new rules reduce the burden on smaller nonprofits by increasing the threshold that triggers compliance audits currently performed under OMB Circular No. A-133, Audits of States, Local Governments, and Non-Profit Organizations (also known as single audits).</p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s&nbsp;<em>Profitable Solutions for Nonprofits</em>&nbsp;is a quarterly newsletter that focuses on tax and accounting issues for the not-for-profit industry, brought to you by&nbsp;<a href="http://www.ksmcpa.com/not-for-profit" >KSM&#39;s Not-for-Profit Services Group</a>.</p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p></div><p><br />&nbsp;</p>ameyer@ksmcpa.com (Amanda Meyer)Thu, 16 Oct 2014 13:00:00 GMTLitigation Services Bulletin - Fall 2014http://www.ksmcpa.com/news-blog/litigation-services-bulletin-fall-2014
<p><span style="font-weight: 700;"><span style="font-size: 18px;">In This Issue:</span></span></p><p><a href="http://www.ksmcpa.com/may-expert-use-valuation-with-unknown-discounts-for-royalty-analysis" ><span style="font-weight: 700;">May Expert Use Valuation with Unknown Discounts for Royalty Analysis?</span></a><br />The plaintiff&rsquo;s&nbsp;<em>Daubert</em>&nbsp;challenge in this intellectual property case is noteworthy because the plaintiff sought to enlarge the concept of comparability when arguing that Microsoft&rsquo;s damages expert produced an unreliable calculation. It also attacked the expert for using the plaintiff&rsquo;s own valuation of the patent in suit even though he did not know the embedded discounts accounting for uncertainty.</p><p><a href="http://www.ksmcpa.com/nash-bargaining-solution-a-non-starter-for-royalty-analysis" ><span style="font-weight: 700;">Nash Bargaining Solution a &lsquo;Non-Starter&rsquo; for Royalty Analysis</span></a><br /><span style="line-height: 1.4em;">After rejecting the plaintiff&rsquo;s&nbsp;<em>Daubert</em>&nbsp;challenge in an earlier ruling, the federal district court next turned to defendant Microsoft&rsquo;s attack on the plaintiff&rsquo;s damages expert, specifically its claim that his reasonable royalty calculation was the result of the Nash bargaining solution (NBS)&mdash;an impermissible rule of thumb that did not tie the royalty rate to the particulars of a case.</span></p><p><a href="http://www.ksmcpa.com/stand-alone-lost-profits-claim-sinks" ><span style="font-weight: 700;">&lsquo;Stand-Alone&rsquo; Lost Profits Claim Sinks, as Does Expert Opinion</span></a><br />A short&nbsp;<em>Daubert</em>&nbsp;decision regarding a contract dispute subject to New York law and involving the licensing of patents stands out because it discusses not only problematic expert testimony, but also the use of future lost profits as a measure of damages and the relevance of the hypothetical negotiation framework to the case.</p><p><a href="http://www.ksmcpa.com/don-t-forget-about-your-expert-valuation-delaware-chancery-warns" ><span style="font-weight: 700;">Don&rsquo;t Forget About Your Expert Valuation, Delaware Chancery Warns</span></a><br />Even when a case ostensibly is not about valuation, valuation issues often play a pivotal role, and failure to provide a valuation may undermine a party&rsquo;s claim. This is one of the lessons gleaned from a Delaware shareholder suit that moved from the Delaware Court of Chancery to the state&rsquo;s Supreme Court on a novel legal issue.<br /><br /><a href="http://www.ksmcpa.com/court-balks-when-expert-veers-from-classic-analysis" ><span style="font-weight: 700;">Court Balks When Expert Veers from Classic Analysis</span></a><br />When it comes to methodology, stick to the tried and true. This is the key takeaway from a recent intellectual property case involving a patent related to a dual-flush valve mechanism in toilets. An experienced appraiser adjusted the royalty base and royalty rate formulas&mdash;and saw his damages calculation go down the drain.</p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s&nbsp;<em>Litigation Services Bulletin</em>&nbsp;is a quarterly newsletter that focuses on the latest developments in litigation services and financial damages expert consulting, brought to you by&nbsp;<a href="http://www.ksmcpa.com/litigation-services" >KSM&#39;s Litigation Services Group</a>.&nbsp;</p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p><p>&nbsp;</p><p><br />&nbsp;</p>ameyer@ksmcpa.com (Amanda Meyer)Tue, 14 Oct 2014 15:36:00 GMTDriver Recruiting and Retention: Latest Trends and Best Practiceshttp://www.ksmcpa.com/news-blog/driver-recruiting-and-retention-latest-trends-and-best-practices
<div>Recently Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/transportation" >Transportation Services Group</a> and <a href="http://www.ksmta.com/" target="">KSM Transport Advisors</a> co-hosted a Trucking Owners Business Roundtable in Nashville, TN. Approximately 35 trucking company owners and executives attended the roundtable, which focused on the driver shortage and driver recruiting and retention. Gordon Klemp (The National Transportation Institute), Steve Prelipp (Prelipp Consulting), John Biblis (Truck Safety Advisors) and Mark Baugh (Baker Donelson) presented on these important and timely topics.<br />&nbsp;</div><div>Klemp provided insight into today&rsquo;s company driver and owner-operator compensation trends. Overall, Klemp believes that the industry will see a significant increase in driver pay in the coming months in an effort to recruit and retain drivers. The current driver shortage has led many trucking companies to be creative with their compensation packages in order to compete with private fleets, which generally offer higher compensation and more home time. Klemp also provided insight into how the driver shortage came to be, including increased unemployment benefits, the underground economy, stricter qualifications/regulations, technology, retirements and competition from private fleets. Having a competitive compensation package has always been imperative, but has become even more important in the current environment. &nbsp;<br />&nbsp;</div><div>Prelipp provided some best practices for the ultra-competitive driver recruiting function. The driver shortage has made an already challenging task (recruiting drivers), even more challenging and competitive. What may have worked in recruiting 10 years ago has changed dramatically. Today&rsquo;s driver generally has different expectations, such as more work/life balance, from their potential employer than the driver of 10-15 years ago. Prelipp believes that in order to succeed, an organization must have a well-defined recruiting model, which includes setting goals, having the right people and systems and must be results oriented. The recruiting function must also have the right leader who can relate to Generations X and Y, must be tech-savvy and manages for results. Often times, the recruiting department can lead to a company&rsquo;s success or its ultimate failure. Investing the necessary (and right) people and resources in this function can provide for a competitive advantage. &nbsp;<br />&nbsp;</div><div>Biblis spoke about hiring the <em>right</em> driver in order to improve safety, productivity and retention. He reminded the audience that the driver is the only one in the organization that generates revenue, but often times these individuals are paid less than they deserve, spend multiple nights away from home and are generally treated poorly. Biblis suggested evaluating recruiters on quality and not just quantity. He also suggested that retention issues may not just be the result of poor pay or equipment, but may be more of a process and/or relationship driven issue. Biblis provided a few tips to improve retention, including: 1) Say what you do and do what you say; 2) Make sure recruiters know what they are selling; 3) Identify what you track and manage the data; 4) Evaluate every process; 5) Perception surveys (drivers and non-drivers); 6) Implement a shepherding program. &nbsp;<br />&nbsp;</div><div>Baugh spoke about some of the employment legal issues surrounding the trucking industry, specifically the Fair Labor Standards Act (FLSA) and independent contractor status. The amount of FLSA claims, which include misclassification of employees and minimum wage issues, has increased from approximately 5,300 claims in 2008 to approximately 8,000 in 2013. FLSA claims can lead to high damages, liquidated damages and individual liability. In order to manage the FLSA risk, Baugh suggests adopting a policy, review job descriptions, self-audit and if problems are discovered, pay and ask for an acknowledgement.&nbsp;<br />&nbsp;</div><div>Independent contractor status is another hot topic industry wide. Misclassification of independent contractor vs. employee can lead to issues with the Department of Labor, Equal Employment Opportunity Commission &nbsp;and the Internal Revenue Service, just to name a few. In order for trucking companies to protect themselves, Baugh recommends having a written contract between the company and the independent contractor, having the independent contractor supply their own equipment, fuel and tools, having separate training and policies and being clear. While the FLSA and independent contractor classification issues are complex, proper planning and documentation can help reduce the risk around these issues.<br />&nbsp;</div><div><em>The Trucking Owners Business Roundtable, exclusively designed for trucking executives, is an annual program hosted in Indianapolis, IN and Nashville, TN. The roundtable is an opportunity for owners of some of the country&#39;s top trucking companies to learn about and discuss current issues that present challenges and opportunities for their businesses. For more information regarding the program, please contact Tim Almack 317.580.2068 or <a href="mailto:talmack@ksmcpa.com">talmack@ksmcpa.com</a>.&nbsp;</em></div><p class="ksm-separator-line">&nbsp;</p><p><span style="font-weight: 700;"><img align="left" alt="" height="95" src="https://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/b5348add-5fe9-42a9-962b-e4424491f516/jason-i.-miller-final.jpg" style="width:95px;height:95px;margin-top:0px;margin-right:10px;margin-bottom:0px;margin-left:0px;border:0px" title="" width="95" />Connect with Jason&nbsp;</span><a href="http://www.linkedin.com/pub/jason-miller/3/19a/743" target="_blank"><img align="" alt="" height="16" src="https://mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/0eefc1a8-fbf9-4f5c-a1dc-c375729ecc79/icon-linkedin.png" style="width:16px;height:16px;margin-top:0px;margin-right:0px;margin-bottom:0px;margin-left:0px;border:0px" title="Connect with Jason on LinkedIn" width="16" /></a><br /><a href="http://www.ksmcpa.com/jason-i-miller" target="">Jason Miller</a> is a director in Katz, Sapper &amp; Miller&rsquo;s&nbsp;<a href="http://www.ksmcpa.com/assurance" target="">Audit and Assurance Services Department</a>&nbsp;and a member of the&nbsp;<a href="http://www.ksmcpa.com/transportation" target="">Transportation Services Group</a>. Jason focuses on the day-to-day delivery of core audit services, including financial statement audits, reviews and consulting.</p><p class="ksm-separator-line">&nbsp;</p>ameyer@ksmcpa.com (Amanda Meyer)Fri, 03 Oct 2014 14:25:00 GMTValuation Services Bulletin - Fall 2014http://www.ksmcpa.com/news-blog/valuation-services-bulletin-fall-2014
<p><span style="font-weight: 700;"><span style="font-size: 18px;">In This Issue:</span></span></p><p><a href="http://www.ksmcpa.com/help-clients-squeeze-the-most-value-out-of-m-a-synergy" ><span style="font-weight: 700;">Help Clients Squeeze the Most Value Out of M&amp;A Synergy&nbsp;</span></a><br />As the economy improves, M&amp;A activity increases. Companies buy other companies because they expect an increase in value triggered by the combination of two firms into a new entity.</p><p><a href="http://www.ksmcpa.com/how-to-value-a-holding-company-and-discount-for-bicg-liability" ><span style="font-weight: 700;">How to Value a Holding Company and Discount for BICG Liability</span></a><br />Just as film critics predict that a movie they see today will be a contender in next year&rsquo;s Oscar race, many believe the Tax Court&rsquo;s recent&nbsp;<em>Estate of Richmond</em>&nbsp;opinion will be one of the most important valuation decisions of 2014.</p><p><a href="http://www.ksmcpa.com/u-s-tax-court-judge-laro-discusses-valuation-and-expert-testimony-issues" ><span style="font-weight: 700;">U.S. Tax Court Judge Laro Discusses Valuation and Expert Testimony Issues</span></a><br />It is not every day that one has an opportunity to hear the insights of a U.S. Tax Court judge on issues of interest to valuation analysts. At a recent luncheon sponsored by the Business Valuation Association, Judge David Laro spoke on a number of interesting topics.</p><p><a href="http://www.ksmcpa.com/pratt-s-stats-analysis-reveals-significant-trends" ><span style="font-weight: 700;"><em>Pratt&rsquo;s Stats</em>&nbsp;Analysis Reveals Significant Trend</span></a><br />Recent analysis of 2013 data from&nbsp;<em>Pratt&rsquo;s Stats</em>, the leading private M&amp;A transaction database, reveals several notable trends.</p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s&nbsp;<em><a href="http://www.ksmcpa.com/valuation-services-bulletin-fall-2014" >Valuation Services Bulletin</a>&nbsp;</em>is a quarterly newsletter that focuses on&nbsp;the latest developments affecting business litigation, marital dissolution and estate and gift tax, brought to you by KSM&#39;s&nbsp;<a href="http://www.ksmcpa.com/valuations" >Valuations Services Group</a>.</p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p>ameyer@ksmcpa.com (Amanda Meyer)Thu, 25 Sep 2014 22:29:00 GMTState & Local Tax Update - 9/24/14http://www.ksmcpa.com/news-blog/state-local-tax-update-9-24-14
<p><span style="font-family: Arial; font-size: large; font-weight: bold; line-height: normal;">Trending Assessment for Indiana Real Property Taxes</span></p><div>Indiana counties are currently wrapping up their 2014 trending assessments. During trending years, assessors are required to review recent sales and verify that the assessments are accurate using mass appraisal techniques. This process can become difficult for commercial properties due to the lack of arms-length sale transactions.&nbsp;</div><p><span style="line-height: 1.4em;">Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their tax bill, it is often too late to appeal the assessed value for that year. Many counties have already mailed their assessments, and the 45-day appeal period is well underway.</span></p><p>Contact your KSM advisor, or KSM property tax leader&nbsp;<a href="http://www.ksmcpa.com/chad-m-miller">Chad Miller</a>,&nbsp;<span style="line-height: 1.4em;">as soon as you receive your Form-11. We would be happy to review the assessed value of your commercial property to help you consider whether an appeal should be filed.</span></p><div style="margin-top: 10px; margin-bottom: 6px; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(204, 204, 204);"><br /><strong style="line-height: 1.4em;">Indiana Supreme Court Reverses Tax Court Decision on Calculation of Net Operating Losses:</strong></div><p>The Indiana Supreme Court ruled that a multinational manufacturer may not deduct foreign source dividends when calculating Indiana net operating losses, and the disallowance of the deduction did not violate the Foreign Commerce Clause of the U.S. Constitution. For more information, see <a href="http://cl.exct.net/?qs=992137e077e8e3e49eb84e024acf923803980ee85454195dbe2b47f18e5d58e4" title="Indiana Department of State Revenue v. Caterpillar, Inc., Ind. S. Ct. Dkt. No. 49S10-1402-TA-79. 08/25/2014">Indiana Department of State Revenue v. Caterpillar, Inc., Ind. S. Ct. Dkt. No. 49S10-1402-TA-79. 08/25/2014</a>.</p><p><strong>Illinois Issues Final Sourcing Rules for Local Sales Tax:</strong></p><p>In response to the recent <a href="http://cl.exct.net/?qs=992137e077e8e3e49780e1550772ecff6aa03863cf9e0fdd02e1bb32dc771fad" title="Hartney decision"><em>Hartney</em> decision</a>, the Illinois Department of Revenue has issued final regulations regarding sourcing for local tax purposes. The final regulations indicate the local tax liability is based on the location where the retailer is &quot;engaged in the business of selling tangible personal property,&quot; and are effective June 25, 2014. See 86 Ill. Admin. Code &sect;&sect; 220.115, 270.115, 320.115, 370.115, 395.115, 630.120, 670.115, 690.115, 693.115 and 695.115 for additional information.</p><p><strong>Illinois Appellate Court Finds Non-Titled Personal Property Use Tax Ordinance Invalid:</strong></p><p>The Cook County Use Tax of Non-Titled Personal Property Tax Ordinance was found invalid for violating the Counties Code. Home rule counties are prohibited from imposing a use tax based on the selling or purchase price of tangible personal property per ILCS Chapter 55 &sect;&nbsp;5/5-1009. The court concluded that the use tax is actually a sales tax on the purchase of the property, and accordingly, the ordinance is an improper use tax on the selling or purchase price of personal property that is prohibited. For details see <a href="http://cl.exct.net/?qs=992137e077e8e3e41a7bc759b43fe10ca1bab3cf97096a1f9357c28095fd6d3c">Reed Smith v. Ali et al., Ill. App. Ct. (1st Dist.), Dkt. No. 1-13-2646, 08/04/2014</a>.</p><p><strong>Louisiana Amnesty Program Details Released:</strong></p><p>The Louisiana Department of Revenue has announced that its 2014 Amnesty Program will run from October 15, 2014, through November 14, 2014. The <a href="http://cl.exct.net/?qs=992137e077e8e3e44b6ef258bc960e472501d170e356a0088d597d2f28f977a5" title="Tax Amnesty Fact Sheet">Tax Amnesty Fact Sheet</a> provides details on eligible taxpayers, eligible taxes, and benefits of the program.</p><p><strong>Massachusetts Amnesty Program Details Released:</strong></p><p>The Massachusetts Department of Revenue has announced that its 2014 Amnesty Program will run from September 1, 2014, through October 31, 2014. The <a href="http://cl.exct.net/?qs=992137e077e8e3e4bef65c8e7d8f7efb899f880107f30d017d00b00e55dbf1fd" title="amnesty FAQs">amnesty FAQs</a> provide details on eligible taxpayers, eligible taxes, and benefits of the program.</p><p><strong>Michigan to Exempt Business Property from Personal Property Tax:</strong></p><p>Ballot Proposal <a href="http://cl.exct.net/?qs=992137e077e8e3e45cd7e9ec339fe191977bb33e454c5db55bd145dfc4665b9e" title="14-1">14-1</a> was approved by voters August 5, 2014. The proposal will allocate a portion of the state use tax to fund the elimination of the personal property tax on eligible industrial and commercial personal property. The ballot proposal reduces the state portion of the use tax and replaces it with a local community stabilization share of the tax to fund the exemption of eligible industrial and commercial personal property from the personal property tax. The ballot measure takes effect January 1, 2015.</p><p><strong>New Jersey Tax Court Disallows Credit for New York Tax Paid:</strong></p><p>A New Jersey resident S corporation shareholder was allowed a tax credit for taxes paid to New York on her S corporation income only to the extent that the New York tax was paid on income that would have been allocated to New York under New Jersey&#39;s allocation rules. For the tax year in question, 80% of the S corporation&#39;s income was allocated to and taxed by New York based on New York&#39;s single factor gross receipts formula while only 60.8% of the S corporation&#39;s income would have been allocated to New York under New Jersey&#39;s three- factor formula. The court ruled that the credit for taxes paid to another state does not apply to the extent that tax is paid to New York on income that would have been allocated to New Jersey under New Jersey&#39;s tax rules. See <a href="http://cl.exct.net/?qs=992137e077e8e3e4f70cb189f6a035a9a8a0a5309a45253d52eee82e8a92a26d">Criticare, Inc. and Marina Haber v. Director, Division of Taxation, N.J. Tax Ct., Dkt. No. 008253-2013, 07/08/2014</a> &nbsp;for details.</p><div><span class="MPStyle_BlogAuthor blog-author"><marketpath:token alignment="null" id="f7067c08-e7a6-4997-b3b5-eee7ef9d96ad" settings="width:96;height:96" type="content"></marketpath:token></span></div>jcody@ksmcpa.com (Jenina Cody)Wed, 24 Sep 2014 16:20:00 GMTKSM & McLeod Release Trucking Survey Key Findingshttp://www.ksmcpa.com/news-blog/ksm-mcleod-release-trucking-survey-key-findings
<div><p>Indianapolis, Ind. &ndash; Katz, Sapper &amp; Miller (KSM) and McLeod Software (McLeod) released key findings today from their inaugural trucking industry benchmarking survey.</p><p>&ldquo;This survey breaks new ground by giving truckload carriers the opportunity to measure the real performance of their operations against their peers,&rdquo; said Tim Almack, partner-in-charge of KSM&rsquo;s Transportation Services Group. &ldquo;KSM and McLeod have begun the hard work of establishing a solid core of comprehensive benchmarking data on business performance for freight transportation companies, and the key findings from this report offer the first look at the results of these efforts.&rdquo;</p><p>The survey collected approximately 130 data elements for the calendar year 2013. Carriers who participated in the survey run a total of more than 16,000 trucks. Of this truck total, 83% are company assets and 17% are owner-operator. Grouped together, these companies hauled more than three million loads, ran over 1.6 billion miles, and generated close to $3.9 billion in total revenue.</p><p>The key findings reveal how carriers compare to each other in terms of such vital metrics as operating ratio (OR), average MPG and dispatched miles per truck. The analysis was refined by sorting data with respect to carrier size, electronic on-board recorder (EOBR) use and fleet type.</p><p>Select findings reveal:</p><ul><li>Large carriers (more than 500 trucks) posted the best operating ratio (OR), with an average of 92, versus 94 for medium carriers (101&ndash;500 trucks) and 95 for small carriers (100 trucks or less). Small carriers reported average MPG of 5.7, compared to 5.9 for medium carriers and 6.0 for large carriers. Small carriers reported the highest net fuel cost per mile, with an average of <marketpath:listarea type="Entries">.64, while the figure for both medium and large carriers was <marketpath:listarea type="Entries">.59.</marketpath:listarea></marketpath:listarea><br />&nbsp;</li><li><span style="line-height: 1.4em;">In terms of the breadth of a carrier&rsquo;s customer base, there was a pronounced gap between small and medium carriers on one side and large carriers on the other. Small and medium carriers reported that 75% of their revenue comes from their top 20 customers, while the figure for large carriers was 49%.</span></li></ul><p><a href="https://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/38a96681-913d-41c7-9f5f-6d31a8911e49/ksm_benchmarkingsurvey.pdf" target="_blank">Download the executive summary</a></p><p>&ldquo;The number of carriers who are electing to participate in this ongoing benchmark program is expected to increase substantially in future years, as more carriers recognize the benefits that benchmarking data can bring to their internal improvement efforts,&rdquo; said Mark Cubine, vice president of marketing for McLeod.</p><p align="center">###</p></div><p><strong>About Katz, Sapper &amp; Miller</strong><br /><span style="line-height: 1.4em;">As one of the top 65 CPA firms in the nation, Katz, Sapper &amp; Miller (KSM) has earned a reputation as a leader in the areas of accounting, tax and consulting services. Through the firm&rsquo;s experience with 100-plus trucking and logistics clients throughout North America, KSM has become a national service provider to the trucking industry. For more information, visit </span><a href="http://www.ksmcpa.com/home" style="line-height: 1.4em;">ksmcpa.com</a><span style="line-height: 1.4em;">.</span></p><p>The firm provides additional services through KSM Transport Advisors, LLC (KSMTA), a part of the Katz, Sapper &amp; Miller Network. KSMTA exclusively services the trucking industry, providing freight network engineering and profit improvement services and products. For more information, visit <a href="http://www.ksmta.com" target="_blank">ksmta.com</a>.</p><p><strong style="line-height: 1.4em;">About McLeod Software</strong><br /><span style="line-height: 1.4em;">Transportation companies that work with McLeod Software find the best ways to improve customer service levels, improve their operating ratios, attract and retain the best drivers, and drive automation to destroy inefficiency.&nbsp;McLeod Software is the leading provider of transportation dispatch, accounting, operations and brokerage management software, and document management systems. Specifically developed for the trucking industry, McLeod Software&#39;s advanced management solutions and services enable transportation companies to increase their efficiencies while reducing costs. For more information, visit </span><a href="http://www.mcleodsoftware.com" style="line-height: 1.4em;" target="_blank">mcleodsoftware.com</a><span style="line-height: 1.4em;">.</span></p>ameyer@ksmcpa.com (Amanda Meyer)Mon, 15 Sep 2014 12:00:00 GMTEmployee Benefits Update: PPA Document Restatementhttp://www.ksmcpa.com/news-blog/employee-benefits-update-ppa-document-restatement
<div>The Internal Revenue Service (IRS) requires that all pre-approved defined contribution plans be updated every six years to comply with changes to laws and regulations made since the previous restatement cycle. The previous cycle ended on April 30, 2010, which required employers to restate their pre-approved retirement plan documents to comply with provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).&nbsp;</div><div>&nbsp;</div><div>The IRS has opened the next restatement cycle period, which will require an update of any pre-approved plans to comply with law and regulation changes made primarily by the Pension Protection Act of 2006 (PPA). The PPA document restatement cycle ends April 30, 2016.</div><div>&nbsp;</div><div>As your plan document will be restated in its entirety, this is an excellent time to review the provisions of your plan to make sure that it is working effectively for you. If Katz, Sapper &amp; Miller currently provides your retirement plan document services, we will be contacting you in the near future to schedule a review of your plan&rsquo;s provisions and to assist you in evaluating your plan&rsquo;s design to determine if it is still accomplishing its intended goals and objectives. We will also assess whether any additional changes should be made during the current restatement process. &nbsp;</div><div>&nbsp;</div><div>We have prepared a list of <a href="http://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/33a22763-3093-471d-b4cc-3d513f1a9dc5/faqs-restating-a-qualified-retirment-plan.pdf" >frequently asked questions</a> to help answer your questions regarding restating a qualified plan.&nbsp;<br /><br /><div style="border-top: 1px solid #ccc; margin: 10px 0 6px;">&nbsp;</div></div><div>The contents of this message are for informational purposes only. If you have any questions regarding your retirement plan or the restatement process, please contact any of the following members of our Employee Benefit Plan Services Group.&nbsp;</div><div>&nbsp;</div><div><a href="http://www.ksmcpa.com/patrick-r-brauer" >Patrick Brauer</a></div><div>Partner</div><div>317.844.4873&nbsp;</div><div>&nbsp;</div><div><a href="http://www.ksmcpa.com/bernadette-fletcher" >Bernadette Fletcher</a></div><div>Director</div><div>317.580.2134&nbsp;</div><div>&nbsp;</div><div><a href="http://www.ksmcpa.com/karen-e-noel" >Karen Noel</a></div><div>Director</div><div>317.844.4879</div><div>&nbsp;</div><div>Nan Turner</div><div>Manager</div><div>317.452.1266</div><div>&nbsp;</div><div>Ginger Henry</div><div>Retirement Plan Consultant</div><div>317.452.1160</div><div>&nbsp;</div><p><br />&nbsp;</p>ameyer@ksmcpa.com (Amanda Meyer)Mon, 25 Aug 2014 17:37:00 GMTAccounting Standards Update on Revenue Recognitionhttp://www.ksmcpa.com/news-blog/accounting-standards-update-on-revenue-recognition
<div>In May of this year, the Financial Accounting Standards Board issued an Accounting Standards Update (ASU) on recognition of revenue from contracts with customers. This ASU is the result of a comprehensive overhaul of revenue recognition for all industries. The research and observations of the project were launched in an exposure draft issued in June 2010.This new standard aims to bring consistency between U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards. All industries, many of which have developed their own industry specific revenue recognition guidance over time, such as the percentage of completion method in the construction industry, will follow the guidance contained in this ASU.</div><div>&nbsp;</div><div>This ASU brings a principles-based approach to revenue recognition, and requires an entity to:</div><ul><li>Identify its contracts with customers,</li><li>Identify the separate performance obligations in a contract,</li><li>Determine the transaction price of the contract,</li><li>Allocate the transaction price to the separate performance obligations, and</li><li>Recognize revenue when (or as) the entity satisfies the performance obligations.</li></ul><div>Also required by this ASU will be more detailed disclosures for readers of your financial statements about your contracts with customers. This will include both qualitative and quantitative information regarding the amount, timing and uncertainty of revenues, as well as a description of the significant judgments used. However, the new footnote requirements will not be as significant for private entities as they will be for public entities.</div><div>&nbsp;</div><div>Some highlights of note for the construction industry include:</div><ul><li><strong>Performance Obligations</strong> &ndash; contracts are to be broken out into separate performance obligations.</li><li><strong>Cost to Cost </strong>&ndash; this method will be allowed as an input method in recognizing revenue when performance obligations are satisfied over time.
<ul><li>As a contractor satisfies a performance obligation over time, the ability to recognize revenue under cost to cost will allow the contractor to continue to account for revenue under a path similar to the percentage of completion method used today, if it is determined that the contract has only one performance obligation.</li></ul></li><li><strong>Uninstalled Materials </strong>&ndash; there will now be certain situations in which an entity may recognize revenue in an amount equal to the cost of uninstalled materials.</li><li><strong>Incremental Costs to Acquire a Contract</strong> &ndash; such as employee commissions, may need to be capitalized and amortized as performance obligations are satisfied.</li><li><strong>Costs to Fulfill a Contract </strong>&ndash; such as mobilization costs, may need to be capitalized and amortized as performance obligations are satisfied.</li><li><strong>Penalties</strong> &ndash; a contractor must estimate the probability of contract penalties when considering transaction price; penalties may lower revenue until they become probable of not occurring.</li></ul><p>As construction owners and executives, <strong>now is the time to communicate with your business partners and plan for these changes in your financial reporting.</strong> Some considerations include:</p><ul><li>Bank covenants may need to be re-examined,</li><li>Bonding capacity formulas may need to be discussed,</li><li>Tax consequences (book/tax differences and revenue apportionment, etc.) should be understood,</li><li>Information technology and software solutions may need to be enhanced as to their contract management, accounting and reporting modules.</li></ul><div>Further, an entity&rsquo;s management team will also need tailored education on this ASU to create and follow through on an overall implementation plan, covering the items listed above.</div><div>&nbsp;</div><div>The effective date of this standard on U.S. private entities is Jan. 1, 2018, for calendar year entities. However, if comparative statements are to be presented in 2018, the 2017 financial statements would need to be restated to also follow the new guidance. This means that entities may need to be capable of applying the new standards as of Jan, 1, 2017.</div><div>&nbsp;</div><div>While it seems like the effective date is far off, now is the time to think about the impact of the new revenue recognition standard on your business.</div><div>&nbsp;</div><p class="ksm-separator-line">&nbsp;</p><p><span style="font-weight: 700;"><img align="left" alt="" height="94" src="https://mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/5b8f2ee0-e38f-4ea1-9152-72d035c7cf66/matt-bishop-final.jpg" style="width:94px;height:94px;margin-top:0px;margin-right:10px;margin-bottom:40px;margin-left:0px" title="" width="94" />About the Author</span><br />Matt Bishop is a manager in Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/assurance" target="">Audit and Assurance Services Department</a>&nbsp;and a member of the firm&#39;s <a href="http://www.ksmcpa.com/construction" >Construction Services Group</a>. Matt supervises audits and reviews of financial statements, oversees tax return preparation, and advises clients in accounting, reporting, compliance, internal control and other matters. Connect with him on <a href="http://www.linkedin.com/in/matthewjamesbishop" target="_blank">LinkedIn</a>.</p><p class="ksm-separator-line">&nbsp;</p><p>&nbsp;</p>ameyer@ksmcpa.com (Amanda Meyer)Thu, 21 Aug 2014 14:34:00 GMTParadigm Shift: Linehaul + Fuel Surcharge is the New Linehaulhttp://www.ksmcpa.com/news-blog/paradigm-shift-linehaul-fuel-surcharge-is-the-new-linehaul
<p style="box-sizing: border-box; margin-top: 0px; margin-bottom: 20px; direction: ltr; line-height: 22px; text-rendering: optimizelegibility;"><span style="box-sizing: border-box; font-weight: 700; line-height: inherit;">Pop quiz</span>: A carrier has two customers that ship from Indianapolis to Dallas. Customer A pays $1.56 linehaul per mile plus FSC (fuel surcharge). Customer B pays $1.73 linehaul per mile plus FSC. Which customer has the better rate?&nbsp;</p><p style="box-sizing: border-box; margin-top: 0px; margin-bottom: 20px; direction: ltr; line-height: 22px; text-rendering: optimizelegibility;"><span style="box-sizing: border-box; font-weight: 700; line-height: inherit;">Correct answer</span>: It depends on the FSC for each customer.</p><div>The long-established truckload industry practice of using linehaul rates to compare shippers&rsquo; rates on a given lane is no longer valid and can be extremely misleading.</div><div>&nbsp;</div><div>Most carriers have a standard FSC; however very few of their customers utilize that standard. In today&rsquo;s world, the shipper drives the FSC using one of many methodologies: shipper standard FSC, PADD-specific FSC, Breakthrough&reg; Fuel, Zero Peg Fuel, all-in-rate, etc. Most, but not all, of these methodologies use the Department of Energy&rsquo;s (DOE) National Retail Diesel Average as the source to calculate the FSC.</div><div>&nbsp;</div><div>The standard FSC today is that there is no standard. To understand the reason for this one must take a quick look at the history of fuel surcharge in the industry. Fuel surcharge came widely into play during the early 1990s as a by-product of The Gulf War. Fuel had been consistent over a long period of time since the oil embargo of 1973; with the uncertainty of supply created by the war, fuel prices spiked to unprecedented levels and carriers and shippers searched for a means to mitigate the uncertainty of fuel cost. Truckload carriers and their customers created a FSC system with a base price based on the DOE of $1.15 or $1.20 per gallon with the carrier receiving a FSC of .01 for each .05 increase over the base (based on trucks getting then around five miles per gallon). This system was fair and bilateral as there were times when carriers were applying a negative FSC when the DOE went below the base. What was implemented as a temporary solution has become an integral part of today&rsquo;s pricing landscape.</div><div>&nbsp;</div><div>Fast-forward to today and there is no standard FSC that is applied by carriers and shippers. Carriers and shippers negotiate based upon an &ldquo;all-in-rate&rdquo; and push the dollars to either the linehaul or FSC buckets depending on the optics that will help finalize the deal &nbsp;and make the rate appear most favorable in the eyes of (generally shipper) stakeholders.<br />&nbsp;</div><p style="box-sizing: border-box; margin-top: 0px; margin-bottom: 20px; direction: ltr; line-height: 22px; text-rendering: optimizelegibility;">The ability to compare rates is critical when working bids, comparing rates to indices, managing metrics and trends, or analyzing specific shippers or lanes. It is critical in all of these endeavors to compare &ldquo;apples to apples.&rdquo; <a href="http://www.ksmta.com" target="">KSM Transport Advisors</a>, part of the Katz, Sapper &amp; Miller Network, has created a new metric LH+F (linehaul+ FSC) that has been implemented in its work products, methodologies and processes. To learn more about the LH+F metric, please contact <a href="http://www.ksmta.com/david-roush" target="_blank">David Roush</a>, president of KSM Transport Advisors.</p><div><span class="MPStyle_BlogAuthor blog-author"><marketpath:token alignment="null" id="148168ba-6c60-43d7-a515-eb06ef72ad83" settings="width:96;height:96" type="content"></marketpath:token></span></div>ameyer@ksmcpa.com (Amanda Meyer)Thu, 14 Aug 2014 15:54:00 GMTThe Manufacturing Advisor: Amortization of Goodwill Is Back on the Tablehttp://www.ksmcpa.com/news-blog/the-manufacturing-advisor-amortization-of-goodwill-is-back-on-the-table
<p>Manufacturing and distribution companies are continuing to look for opportunities for growth, which in many cases may come through an acquisition. Upon completing an acquisition, any unallocated acquisition price is presented on the balance sheet as &ldquo;goodwill.&rdquo;</p><p>What do you think of when you hear goodwill? If your company is subject to a financial statement audit or review, your first thought may be, &ldquo;Time and money!&rdquo; While accounting considerations surrounding your most significant accounts &ndash; accounts receivable and inventory, for example &ndash; can be burdensome enough, goodwill has only added another layer of complexity in recent years. <a href="http://www.fasb.org/cs/ContentServer?pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176163744355">ASU 2014-02, <em>Intangibles &ndash; Goodwill and Other (Topic 350): Accounting for Goodwill</em></a> may provide some relief if elected by your company.</p><p>Prior to ASU 2014-02, amortization of goodwill was not permitted. Any goodwill resulting from an acquisition was tested for impairment at least annually. In the event the fair value of an entity (or reporting unit) was deemed to be below its carrying amount, a second step was required to determine the amount of goodwill impairment loss. This second step in many cases can be costly not only in terms of dollars spent to assess and support fair value, but also in terms of time spent by your accounting personnel that could otherwise be spent with opportunities to add greater value to your company.</p><p>ASU 2014-02 allows a privately held company to amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the entity demonstrates another useful life is more appropriate. A company electing this accounting alternative is required to make an accounting policy election to test goodwill for impairment at the entity level or the reporting unit level.</p><p><span style="line-height: 1.4em;">Under this alternative, goodwill should be tested for impairment when an event or changes in circumstances occur (a triggering event) that indicates the fair value of the entity (or reporting unit) may be below its carrying amount. Upon such an event or changes in circumstances, a company may assess qualitative factors to determine whether it is more likely than not that the fair value is less than the carrying amount. Further testing is unnecessary when the qualitative assessment indicates it is not more likely than not that goodwill is impaired. Otherwise, a quantitative assessment is required. A company may elect to skip the qualitative assessment and perform the quantitative calculation. A goodwill impairment loss, if any, is recognized for the amount that the carrying amount of the entity (or reporting unit) exceeds the fair value.</span></p><p><span style="line-height: 1.4em;">By allowing for the amortization of goodwill, ASU 2014-02 is expected to reduce the likelihood of impairments. Additionally, the expectation is that privately held companies will have to test goodwill for impairment less frequently, saving both time and money. While the alternative is expected to be a popular election by many companies, careful consideration should be given to the impact of the financial statements and the users of the financial statements. For example, while a lender may typically ignore any value in goodwill&nbsp;as an intangible, the election to amortize goodwill could have a significant impact of financial statements covenants and the general &ldquo;feel&rdquo; of the financial statements.</span></p><p>ASU 2014-02 applies to all privately held companies, as defined, and is effective for annual periods beginning after Dec. 15, 2014, with early adoption permitted. If elected, the accounting alternative should be applied prospectively to goodwill existing as of the beginning of the year of adoption, and any new goodwill recognized in periods beginning after Dec. 15, 2014.</p><div><span class="MPStyle_BlogAuthor blog-author"><marketpath:token alignment="null" id="7a24b74d-f3da-4203-8f1f-721fc369923c" settings="width:96;height:96" type="content"></marketpath:token></span></div>ameyer@ksmcpa.com (Amanda Meyer)Thu, 14 Aug 2014 13:26:00 GMTThe Advisor - Issue 1, 2014http://www.ksmcpa.com/news-blog/the-advisor-issue-1-2014
<p><strong><span style="font-size:18px;">In This Issue:</span></strong></p><p><a href="http://www.ksmcpa.com/understanding-the-responsibilities-and-risks-of-serving-as-a-trustee-of-a-trust" ><strong>Understanding the Responsibilities and Risks of Serving as a Trustee of a Trust</strong></a><br />Being asked to serve as a trustee of a trust may be flattering; however, many factors should be considered in deciding whether to serve as a trustee of a trust. Mistakes can be costly, and trustees can be held liable for breach of fiduciary duty.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By </span><a href="http://www.ksmcpa.com/jay-d-benjamin" ><span style="font-size: 12px;">Jay Benjamin</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA, JD</span></p><div><a href="http://www.ksmcpa.com/don-t-bet-your-bottom-dollar" ><strong>Don&rsquo;t Bet Your&nbsp;</strong><span style="line-height: 1.4em;"><strong>Bottom Dollar</strong></span></a><br />On Jan. 29, 2014, proposed regulations under Internal Revenue Code Section 752 were issued by the U.S. Treasury Department and the Internal Revenue Service, which would preclude partners of partnerships (and members of limited liability companies) from utilizing customary guarantees of partnership debt to bolster the tax basis of partnership interests<span style="line-height: 1.4em;">.&nbsp;</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">By </span><span style="line-height: 1.4em; font-size: 12px;">John Estridge</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></div><p><a href="http://www.ksmcpa.com/preventing-identity-fraud" ><strong><span style="line-height: 1.4em;">Preventing&nbsp;</span></strong><span style="line-height: 1.4em;"><strong>Identity Fraud</strong></span></a><br />In February 2014, the Internal Revenue Service (IRS) ranked identity theft as #1 on its list of &ldquo;Dirty Dozen&rdquo; tax scams. From 2008 through May 2012, more than 550,000 taxpayers have been victims of Stolen Identity Refund Fraud (SIRF)<span style="line-height: 1.4em;">.&nbsp;</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><span style="line-height: 1.4em; font-size: 12px;">Aaron Brezko</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">, CPA/CFF, CFE</span></p><p><a href="http://www.ksmcpa.com/cost-reduction-strategies-what-about-utilities" ><strong>Cost Reduction Strategies: What About Utilities?</strong></a><br />In today&rsquo;s challenging economic times, all businesses and organizations are looking for opportunities to reduce costs. As companies review expenditures, they should not overlook their utilities expense.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/scott-e-grotjan" ><span style="font-size: 12px;">Scott Grotjan</span></a></p><p class="ksm-separator-line">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/newsletters#advisor" target="_blank"><em>The Advisor</em></a> is a bi-annual newsletter that focuses on business and tax solutions for today&#39;s entrepreneur.</p><p class="ksm-separator-line">&nbsp;</p>ameyer@ksmcpa.com (Amanda Meyer)Wed, 06 Aug 2014 13:43:00 GMTThe Affordable Care Act and Passive Incomehttp://www.ksmcpa.com/news-blog/the-affordable-care-act-and-passive-income
<p>With the implementation of the Affordable Care Act, a new focus has been placed on passive and non-passive business activity for income tax purposes. Due to the additional 3.8% tax on investments that resulted from this legislation, it is in the taxpayer&rsquo;s best interest to take a fresh look at the reporting of business and investment income on tax returns.</p><p>If you have a business structure where you own multiple entities, you should review with your CPA what your role is with all the entities you own and what their current classification is on your 1040.&nbsp; There are a few options available to re-classify a taxpayer as being non-passive (not subject to the 3.8% tax) in an entity, if they qualify. You can make an election to group certain business activities together based on their activity, function, location, etc.&nbsp;</p><p>For example,&nbsp;you own a construction business in an S corporation and you rent all your equipment from a separate LLC that you own. Since you&rsquo;re not spending much time with the LLC, you have treated it as a passive activity in the past. It wasn&rsquo;t an issue in the past if you had passive income, but with the new law you could now be paying an additional 3.8% in federal tax if you continue treating the rental activity as passive. You have the option to group this rental activity with your construction company as non-passive as they are essentially all part of the same business.</p><p>Another example would be if you are involved in real estate development and/or rental property along with your construction business. The option of making the election to be treated as a real estate professional may exist depending on the amount of time you spend in real estate activities. If you qualify for this treatment, although it is difficult to meet the criteria, then all your real estate rental and development activities qualify to be treated as non-passive and not subject to the additional tax.</p><p>There are also other advantages to evaluating the status of all of your business entities such as not creating suspended passive losses and not paying the additional investment tax if you sell the entity.&nbsp; Be sure to discuss passive income with your tax advisor; you may be pleasantly surprised at the potential tax savings!</p>ameyer@ksmcpa.com (Amanda Meyer)Tue, 15 Jul 2014 02:55:00 GMTPCORI Fee Due July 31http://www.ksmcpa.com/news-blog/pcori-fee-due-july-31
<p>The Affordable Care Act created a fee called the Patient-Centered Outcomes Research Institute (PCORI) fee. This fee is to be used to fund research on medical treatment effectiveness. This fee is to be paid by both fully-insured and self-funded group health plans.</p><p>The fee is $2 per person enrolled in the plan. A person enrolled in the plan includes the participating employee, spouses, domestic partners and dependents. COBRA and retiree participants also must be counted. The fee is due based on the year-end of the plan. The filing will be <strong>due on or before July 31, 2014</strong>. The fee must be reported on&nbsp;<a href="http://www.irs.gov/pub/irs-pdf/f720.pdf" style="line-height: 1.4em;" target="_blank">IRS Form 720</a>, &ldquo;Quarterly Federal Excise Tax Return.&rdquo;</p><p>If you are an employer with a fully-insured group health plan, no action is required as your health insurance carrier is required to report and pay this fee. This additional fee is most likely built into the premiums that you currently pay.</p><p>If you are an employer with a self-funded plan, you are responsible for calculating the fee, completing the Form 720 and paying the related fee.</p><p>The following plans are considered self-funded plans that are subject to the PCORI fee and the Form 720 filing requirement:</p><ul><li>All self-funded group health plans, including Health Reimbursement Accounts (HRAs)</li><li>An HRA that is offered as part of a fully-insured group health plan &ndash; the fee is paid only on the HRA part of the plan</li><li>A stand-alone HRA plan</li><li>On-site medical clinics</li><li>Retiree-only group health plans</li><li>Employee Assistance Programs &ndash; only if the EAP provides significant medical benefits</li></ul><p>The following plans are exempt from the PCORI fee:</p><ul><li>Employee Assistance Programs &ndash; does not provide significant medical benefits</li><li>Individual Health Savings Accounts</li><li>Health and Dependent Flexible Spending Accounts</li><li>Stand-alone dental plans</li><li>Stand-alone vision plans</li></ul><p><span style="line-height: 1.4em;">Upon determination that you have a self-funded plan, you must complete the </span><span style="line-height: 1.4em;">IRS Form 720</span><span style="line-height: 1.4em;"> (revised version dated April 2014). The form may be completed manually and mailed directly to the IRS (not required to be filed electronically).&nbsp;</span></p><p>The fee is based on the average number of enrollees for the plan year. Most employers should be able to obtain this information directly from their benefit plan service provider(s). If you have to calculate the number of enrollees yourself, there are three methods that you may choose from in determining the average number of enrollees. The methods are as follows:</p><ol><li>The Form 5500 Method: If the plan is required to file Form 5500 and your 2013 Form 5500 is filed timely and before July 31, 2014, this method can be used. To use this method, add the number of participants at the beginning of the year (Part II, line 5 of Form 5500) to the total participants at the end of the year (Part II, line 6d) and divide the total by 2.Then multiply this total by $2.<br />&nbsp;</li><li>The Actual Count Method: This method uses the number of lives covered for each day of the plan year divided by the number of days in the plan year.<br />&nbsp;</li><li>The Snapshot Method: This method uses the total number of lives covered on a given date in each quarter of the plan year. The sum is then divided by 4.</li></ol><p><span style="line-height: 1.4em;">The following sections of the Form 720 will need to be completed (assuming that the Form 720 is being filed only to report the PCORI fee):</span></p><ul><li>Complete the top section of the form. The quarter ending is the second quarter, which is June 2014.</li><li>Go to Part II, line 133. The Applicable Self-Insured Health Plans line is going to be completed. In column (a), report the average number of lives covered. Multiply the number in column (a) by $2 and enter that amount. This calculated amount will also be entered in the tax column.</li><li>Go to Part III and enter the total tax on line 3. Show 0 on line 5 as no payments have been made towards this tax. Line 10 will show the amount due with the return.</li><li>Sign and date the return on the bottom of page 2.</li></ul><p>The fee needs to be paid using the Electronic Federal Tax Payment System.</p><ul><li>Mail the signed and completed Form 720 to:
<ul><li><span style="line-height: 1.4em;">Department of the Treasury</span><br /><span style="line-height: 1.4em;">Internal Revenue Service</span><br /><span style="line-height: 1.4em;">Cincinnati, OH 45999-0009</span><br />&nbsp;</li></ul></li><li>If you want to use FedEx, UPS or DHL, the address to send your return to is:
<ul><li><span style="line-height: 1.4em;">IRS Processing Center</span><br /><span style="line-height: 1.4em;">201 W. Rivercenter Blvd.</span><br /><span style="line-height: 1.4em;">Covington, KY 41011</span></li></ul></li></ul><p>The contents of this message are for informational purposes only. If you have any questions regarding the PCORI fee and filing requirement, please contact your benefit plan service provider or any of the following KSM advisors.</p><p><a href="http://www.ksmcpa.com/patrick-r-brauer" >Patrick Brauer</a>, Partner<br />317.844.4873&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p><a href="http://www.ksmcpa.com/bernadette-fletcher" >Bernadette Fletcher</a>, Director<br />317.580.2134</p><p><a href="http://www.ksmcpa.com/karen-e-noel" >Karen Noel</a>, Director<br />317.844.4879</p><p><a href="http://www.ksmcpa.com/jolaine-l-hill" >Jolaine Hill</a>, Director<br />317.580-2446</p>cdjonlich@ksmcpa.com (Chris Djonlich)Mon, 14 Jul 2014 15:13:00 GMTChange to Sales Tax Collection on Sales of Motor Vehicleshttp://www.ksmcpa.com/news-blog/change-to-sales-tax-collection-on-sales-of-motor-vehicles
<p>The Indiana General Assembly recently enacted a change to the taxability of motor vehicles sold by Indiana dealers to residents of other states. This change became effective on July 1, 2014.</p><p>Out-of-state purchasers should now be charged a sales tax rate that is the lesser of their home state&rsquo;s sales tax rate or the Indiana rate of 7%.&nbsp;<a alias="Information Bulletin #84" conversion="false" href="http://image.exct.net/lib/fe681570746d017c7314/m/1/bulletin+84.pdf" title="Information Bulletin #84">Information Bulletin #84</a>&nbsp;published by the Indiana Department of Revenue discusses the change in detail.</p><p>There may be some confusion or practical challenges in the overall implementation of the change including issues involving the monthly sales tax reporting going forward. Members of our <a href="http://www.ksmcpa.com/dealerships" target="">Dealership Services Group&nbsp;</a>would be happy to discuss these issues with you and provide assistance as you develop your internal compliance standards.</p>ameyer@ksmcpa.com (Amanda Meyer)Fri, 11 Jul 2014 21:00:00 GMTState & Local Tax Update - 7/11/14http://www.ksmcpa.com/news-blog/state-local-tax-update-7-11-14
<p><span style="font-family: Arial; font-size: large; font-weight: bold; line-height: normal;">2014 Trending for Indiana Real Property Taxes</span></p><p>Indiana counties are currently wrapping up their 2014 trending assessments. During trending years, assessors are required to review recent sales and verify that the assessments are accurate using mass appraisal techniques.&nbsp;This process can become difficult for commercial properties due to the lack of arms-length sale transactions.&nbsp;</p><p>Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their <u>tax bill</u>, it is often too late to appeal the assessed value for that year. Many counties have already mailed their assessments, and the 45-day appeal period is well underway. In fact, <strong>Allen County mailed Form-11s June 26, which means the deadline to appeal the assessment is Aug. 10, 2014</strong>.</p><p>Contact your KSM advisor, or KSM property tax leader <a href="http://www.ksmcpa.com/chad-m-miller">Chad Miller</a>,&nbsp;<span style="line-height: 1.4em;">as soon as you receive your Form-11. We would be happy to review the assessed value of your commercial property to help you consider whether an appeal should be filed.</span></p><div style="margin-top: 10px; margin-bottom: 6px; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(204, 204, 204);">&nbsp;</div><p><b>Indiana Updates Guidance on Eligible 529 Contributions</b></p><p>The Indiana Department of Revenue has revised <a alias="Information Bulletin 98" conversion="false" href="http://in.gov/dor/reference/files/ib98.pdf" title="Information Bulletin 98">Information Bulletin 98</a> concerning the Indiana College Choice 529 Education Savings Plan in order to clarify that contributions must be received by the program manager by Dec. 31 of the tax year to qualify for the state income tax credit.</p><p><b>Indiana Tax Court Rules on Manufacturing Exemption</b></p><p>The Indiana Tax Court ruled that a taxpayer, in the business of converting slabs of raw steel, aluminum and paper pulp into &ldquo;sheets&rdquo; of finished product for its customers, produces other tangible personal property when it processes its customers&#39; work rolls and is, therefore, entitled to an exemption on its purchases of equipment it used and materials it consumed in its grinding and calibration operation.</p><p>The Department argued that the taxpayer does not produce a new good, rather, it provides a repair service that is designed merely to perpetuate the useable life of the work roll. However, the court disagreed, finding that the taxpayer&rsquo;s operations met the four pronged test set forth in <i>Rotation Products</i>. See <a alias="Hoosier Roll Shop Services, LLC, v. Indiana Department of State Revenue" conversion="false" href="http://www.in.gov/judiciary/opinions/pdf/05141401tgf.pdf" title="Hoosier Roll Shop Services, LLC, v. Indiana Department of State Revenue"><i>Hoosier Roll Shop Services, LLC, v. Indiana Department of State Revenue</i></a> for details of the decision.</p><p><b>Colorado Enacts Income Tax Credit for Personal Property Tax Paid</b></p><p>Colorado recently enacted a refundable credit to reimburse a business for personal property taxes paid in the state. For any income tax year commencing on or after Jan. 1, 2015, but before Jan. 1, 2020, a qualified taxpayer is allowed a credit equal to a percentage of the property taxes paid for personal property in Colorado during the income tax year.</p><p>To qualify for a tax credit, a taxpayer must have $15,000 or less worth of personal property on which property taxes are paid in Colorado during an income tax year commencing in 2015, or have less than an inflation-adjusted amount for each income tax year thereafter. Such annual limits are based on the total actual value of the taxpayer&#39;s personal property. See <a alias="HB 14-1279" conversion="false" href="http://www.leg.state.co.us/clics/clics2014a/csl.nsf/fsbillcont3/1A07CE785875B74687257C4A0075C967?open&amp;file=1279_enr.pdf" title="HB 14-1279">HB 14-1279</a> for details on the credit.</p><p><b>Connecticut Enacts Changes to Nonresident Income Calculations</b></p><p>Recently enacted <a alias="HB 5466" conversion="false" href="http://www.cga.ct.gov/2014/ACT/PA/2014PA-00155-R00HB-05466-PA.htm" title="HB 5466">HB 5466</a> makes two important changes to the calculation of taxable income for nonresidents: 1) requires nonresidents to pay Connecticut income tax on gains or losses from the sale or disposition of an interest in an entity, such as a partnership, limited liability company, or S corporation, that owns real property in Connecticut, which has a fair market value that equals or exceeds 50% of all the assets of the entity on the date of sale or disposition of the nonresident&#39;s interest in the entity; and 2) alters how nonresidents&#39; sales of property are sourced to Connecticut.</p><p>Gross receipts from sales of property are considered to be earned within Connecticut when the property is delivered or shipped to a purchaser within the state, regardless of the freight-on-board point or other conditions of the sale. Gross receipts from sales of services are considered to be earned within the state when the services are performed by an employee, agent, agency or independent contractor chiefly situated at, connected by contract or otherwise, with or sent out from, offices or branches of the business, trade, profession or occupation or other agencies or locations situated within Connecticut.</p><p><b>Georgia Removes Postage from Definition of Delivery Charges</b></p><p>Recently enacted <a alias="HB 816" conversion="false" href="http://www.legis.ga.gov/Legislation/20132014/137910.pdf" title="HB 816">HB 816</a> redefines &ldquo;delivery charges&rdquo; to clarify that postage charges are not included in delivery charges subject to sales and use taxes if the postage charges are passed on dollar-for-dollar to the direct mail purchaser and are separately stated on the invoice.</p><p><b>Illinois Issues Decision on Sales Factor Sourcing</b></p><p>The Illinois Department of Revenue has ruled that a taxpayer&#39;s dedicated hosting, clouding computing and remote customer supports are services for Illinois sales factor apportionment purposes and should be sourced to its customers&#39; billing addresses. The taxpayer is an information technology hosting service, and the agreements entered into with cloud computing customers are properly characterized as service contracts.</p><p>Specifically, the Department noted that the contractual provisions of the taxpayer&#39;s contracts demonstrated the following characteristics: taxpayer&#39;s customers are not in physical possession of taxpayer-provided hardware and software; taxpayer&#39;s customers do not control taxpayer-provided hardware and software; taxpayer customers do not have a significant economic or possessory interest in taxpayer-provided hardware or software; taxpayer bears the risk of substantially diminished receipts or substantially increased expenditures if there is nonperformance under the contract; the taxpayer uses the hardware and software concurrently to provide services to unrelated customers; and the total contract price substantially exceeds the rental value of the hardware and software for the contract period.</p><p>Because the taxpayer is not able to determine where a customer is physically located, the services are deemed received at the location of the office of the customer from which the services were ordered. Alternatively, if an ordering office cannot be determined, then services are deemed received where the services are billed. See <a alias="PLR IT 14-0003" conversion="false" href="http://tax.illinois.gov/legalinformation/letter/rulings/it/2014/it-14-0003-plr.pdf" title="PLR IT 14-0003">PLR IT 14-0003</a> for details.</p><p><b>Kansas Repeals Nonresident Withholding Requirements</b></p><p>The Kansas Department of Revenue has issued <a alias="Notice 14-09" conversion="false" href="http://www.ksrevenue.org/taxnotices/notice14-09.pdf" title="Notice 14-09">Notice 14-09</a>, which describes in further detail the repeal of nonresident withholding requirements. The Department noted that although the repeal is effective July 1, 2014, as a practical matter, the repeal is effective immediately because withholding is not reported until the end of the year. If income tax is withheld from a shareholder, partner or member and remitted to Kansas during tax year 2014, a 2014 income tax return may be filed and a refund claimed, if appropriate.</p><p><b>Michigan Court of Appeals Rules on Online Subscriptions</b></p><p>The sale of the taxpayer&#39;s Checkpoint online tax and accounting research program was not subject to use tax because any transfer of tangible personal property was incidental to the service provided. Subscribers to the program primarily sought access to up-to-date information relevant to their needs and sought the expert knowledge of the product&#39;s content creators in synthesizing, compiling and organizing the materials, thereby rendering research more efficient. There is no evidence that any <i>de minimus</i> amount of software transferred was the object of the transaction, or that customers sought to own or otherwise have responsibility for the prewritten computer software.</p><p>Considering the transaction as a whole, the fact that the license agreement entitles users to access the Checkpoint program does not establish that users primarily sought the physical software. Also, the manner in which Checkpoint was marketed indicates that the taxpayer was in the business of selling an information service, distinct from its print and software products, and its intent was to profit from providing a service, and not from selling any prewritten computer software. (<i>Thomson Reuters Inc. v. Department of Treasury, Mich. Ct. App., Dkt. No. 313825</i>, 05/13/2014 (unpublished).)</p><p><b>Minnesota Court Rules on Taxability of Pick-Up Charges</b></p><p>Charges imposed by a retailer to retrieve rented equipment at the end of a rental term are subject to tax as part of the gross receipts from a retail sale because those charges are part of the total amount of consideration received as the &ldquo;sales price&rdquo; and are necessary to complete the sale.</p><p>The taxpayer rents traffic control equipment to contractors working on road construction projects, and its invoices include a mandatory charge for pick-up of that equipment covering the costs associated with retrieving and returning the equipment to the taxpayer, the labor costs for those activities, and any costs incurred to repair the equipment.&nbsp;<span style="line-height: 1.4em;">The taxpayer&#39;s pick-up charges are part of the sales price because the pick-up charges are part of the consideration for the rental transaction because they represent something of value given in return for the services it provides to its rental customers. See </span><a alias="Interstate Traffic Signs, Inc. v. Commissioner of Revenue, Minn. S. Ct., Dkt. No. A13-1610, 04/23/2014" conversion="false" href="http://mn.gov/lawlib/archive/supct/2014/OPA131610-042314.pdf" style="line-height: 1.4em;" title="Interstate Traffic Signs, Inc. v. Commissioner of Revenue, Minn. S. Ct., Dkt. No. A13-1610, 04/23/2014"><i>Interstate Traffic Signs, Inc. v. Commissioner of Revenue, Minn. S. Ct., Dkt. No. A13-1610</i>, 04/23/2014</a><span style="line-height: 1.4em;"> for details of the decision.</span></p><div><span class="MPStyle_BlogAuthor blog-author"><marketpath:token alignment="null" id="f7067c08-e7a6-4997-b3b5-eee7ef9d96ad" settings="width:96;height:96" type="content"></marketpath:token></span></div>cdjonlich@ksmcpa.com (Chris Djonlich)Fri, 11 Jul 2014 16:34:00 GMTM&A Heats Up for Manufacturershttp://www.ksmcpa.com/news-blog/m-a-heats-up-for-manufacturers
<p><strong>If you&rsquo;re a potential buyer or a seller in the manufacturing sector, it&rsquo;s time to prepare for action.</strong></p><p>After several years of sluggishness and economic uncertainty, we&rsquo;re beginning to see the distinctive signs of growing intensity in mergers and acquisitions. Lower-middle market M&amp;A activity in the U.S. has increased at a steady pace throughout 2013, and 2014 also started off strong.</p><p>While indicators of growth are plentiful across multiple industries, manufacturing is seeing particularly strong transaction activity. In the second half of 2013, manufacturing led the list of M&amp;A deals ranked by dollar volume of transactions, according to the <a href="https://amaaonline-public.sharepoint.com/" target="_blank">Alliance of Merger &amp; Acquisition Advisors</a> (AM&amp;AA) bi-annual Deal Stats Transaction Survey. The industry also topped the charts over the same period in terms of number of deals, boasting more than double the number of transactions involving any other industry, including second-ranked information industry.</p><p><strong>Major Indiana Deals</strong></p><p>The last 18 months have seen the announcement of several major transactions involving manufacturing companies in Indiana, including:</p><ul><li>The <a href="http://ir.hill-rom.com/releasedetail.cfm?ReleaseID=854715" target="_blank">June acquisition of TRUMPF Medical by Hill-Rom, located in Batesville, Ind., for approximately&nbsp;$250 million</a></li><li>The April announcement of Indiana-based medical device manufacturer <a href="http://dealbook.nytimes.com/2014/04/24/zimmer-to-buy-biomet-for-13-35-billion/?_php=true&amp;_type=blogs&amp;_r=0" target="_blank">Zimmer Holdings&rsquo; intention to acquire local competitor Biomet for $13.35 billion</a></li><li>Last year&rsquo;s <a href="http://www.ibj.com/tyco-to-buy-fishers-based-business-for-150m/PARAMS/article/42012" target="_blank">$150-million acquisition by Tyco of Exacq Technologies, Inc.</a>, a Fishers, Ind.-based company</li></ul><p>Indiana has also seen some significant M&amp;A deals in the technology sector, including <a href="http://www.insideindianabusiness.com/contributors.asp?id=2621" target="_blank">Salesforce&rsquo;s purchase of ExactTarget</a>, <a href="http://www.zdnet.com/blog/btl/teradata-buys-aprimo-for-525-million/42992" target="_blank">Teradata&rsquo;s acquisition of Aprimo</a>, and <a href="http://techcrunch.com/2013/10/17/oracle-buys-compendium-a-content-marketing-startup-to-build-up-its-arsenal-against-frenemy-salesforce/" target="_blank">Oracle&rsquo;s purchase of Compendium</a>.</p><p><strong>What&rsquo;s Driving M&amp;A Activity?</strong></p><p>A number of factors are driving this intensification of M&amp;A activity, including an abundance of private equity funding and a backlog of business owners who have been delaying a sale until the time was right. Judging from the many signs we&rsquo;re seeing, that time may have come.</p><p>PE funds (counting those sized up to $1 billion) raised over $30 billion in 2013, a significant increase over 2012 levels, according to presenters at a recent Indianapolis M&amp;A conference sponsored by law firm Faegre Baker Daniels. In Q1 2014, the PE funds in the sample reported raising nearly $10 billion of capital. With this level of funding available to implement transactions, 2014 promises to be a very active year for M&amp;A.</p><p>On the seller side, baby boomers who had aborted their plans to exit the market during the downturn now are back in the market. They have been biding their time, waiting for valuation multiples to improve before seriously investigating their options for selling. Now, valuation multiples are rebounding&mdash;up above 5x in manufacturing, according to the AM&amp;AA survey. As a result, sellers are starting to line up, willing to make a deal.</p><p>On the buyer side, many business owners are ready to see real growth in their companies, and they are taking advantage of ready investment capital.</p><p><strong>The Time Is Now</strong></p><p>The upshot of these trends is that the moment has come. For owners who have been waiting for the right moment to transition out of the business, it&rsquo;s time to get your house in order to attract the right buyer and maximize the value you see from your business. And if you&rsquo;ve been considering expanding through merger or acquisition, it&rsquo;s time to get off the sidelines and start looking at prime targets.</p><div><span class="MPStyle_BlogAuthor blog-author"><marketpath:token alignment="null" id="3978a105-e53f-4467-9ce3-1932c8ddb492" settings="width:96;height:96" type="content"></marketpath:token></span></div>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 09 Jul 2014 14:01:00 GMTIRS Notice 2014-21 on Virtual Currencieshttp://www.ksmcpa.com/news-blog/irs-notice-2014-21-on-virtual-currencies
<p>The use of virtual currencies, especially Bitcoin, has increased significantly in recent years. This increased use has raised questions regarding the proper tax treatment of these currencies. In an attempt to clarify many of the uncertainties, the IRS has recently released <a href="http://www.irs.gov/pub/irs-drop/n-14-21.pdf" target="_blank">Notice 2014-21</a>, which provides answers for 16 frequently asked questions surrounding virtual currencies.</p><p>The IRS defines virtual currencies as digital representations of value that function as a medium for exchange, a unit of account, and/or a store of value. In other words, the virtual currency acts like &ldquo;real money&rdquo; even though it is not legal tender in any country or jurisdiction. A virtual currency is considered to be &ldquo;convertible&rdquo; if it has an equivalent value with an established currency, or if it can be easily substituted or exchanged for a legal tender. Bitcoin is probably the most well-known and widely used example of a convertible virtual currency today. Bitcoin can be easily traded and exchanged amongst users and can also be bought or sold for various real currencies, such as U.S. dollars and Euros. The IRS notice deals only with convertible virtual currencies and does not address any virtual currency which is not convertible.</p><p>In Notice 2014-21, the IRS starts off by stating that virtual currencies like Bitcoin are considered property, not currency, for tax purposes. Since virtual currencies are considered property, accepting virtual currencies in exchange for goods and services requires the recipient to measure their gross income by using the fair market value of the virtual currency in U.S. dollars as of the date payment was received. Additionally, when virtual currency is used to purchase an item, the taxpayer is required to report gain or loss on the disposition of the virtual currency. In order to do this, the taxpayer must first determine the basis of the virtual currency in U.S. dollars at the time of the exchange. The character of the gain or loss will be determined based on whether the virtual currency is held by the taxpayer as a capital asset. Therefore, if the taxpayer holds the virtual currency as an investment asset then it will be taxed as a capital gain or loss on its disposition. However, if the taxpayer holds the virtual currency as inventory then it will be taxed as ordinary income upon its disposition.</p><p>Some virtual currencies, such as Bitcoin, allow people to &ldquo;mine&rdquo; the currency. This involves users discovering new Bitcoins by solving complex math problems. When a taxpayer successfully mines virtual currency, the fair market value of the mined currency is includable in the taxpayer&rsquo;s gross income for the taxable year. Furthermore, if the taxpayer is mining the virtual currency as part of a trade or business, the net earnings from the activity is considered self-employment income and is subject to the self-employment tax. Similarly, if a taxpayer is paid in virtual currency for services rendered as an independent contractor, the fair market value of the virtual currency received is subject to self-employment tax. In the case of an employer-employee relationship, the fair market value of the currency paid as wages to the employee is subject to federal income tax withholding, FICA tax and FUTA tax, and is required to be reported on Form W-2.</p><p>The IRS went on to state that when certain property payments which require information reporting to the IRS &ndash; such as rent, salaries, wages, premiums, annuities and compensation &ndash; are subject to the same information reporting standards when virtual currency is used to complete the payment. Furthermore, when a Form 1099-MISC is used to report payments of virtual currency, it should be reported using the fair market value of the virtual currency as of the date of the payment.</p><p>Finally, the IRS dictated that taxpayers who have not treated past virtual currency transactions in a manner that is consistent with Notice 2014-21 may be subject to penalties for failure to comply with tax laws. For example, underpayments attributable to virtual currency transactions and failure to report virtual currency transactions in a correct and timely manner may be subject to accuracy-related and information reporting penalties. However, the IRS does note that penalty relief may be available to taxpayers who can show that the underpayment or failure to properly file information on returns is due to reasonable cause.&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Tue, 01 Jul 2014 20:33:00 GMTProfitable Solutions for Nonprofitshttp://www.ksmcpa.com/news-blog/profitable-solutions-for-nonprofits
<p><span style="font-weight: 700;"><span style="font-size: 18px;">In This Issue:</span></span></p><div><a href="http://www.ksmcpa.com/is-it-time-to-form-a-strategic-alliance-with-another-nonprofit" ><span style="font-weight: 700;">Is It Time to Form a&nbsp;<span style="line-height: 1.4em;">Strategic Alliance with&nbsp;</span></span><span style="line-height: 1.4em;"><span style="font-weight: 700;">Another Nonprofit?</span></span></a><br /><span style="line-height: 1.4em;">Why consider partnering with another&nbsp;</span><span style="line-height: 1.4em;">organization? Is there a need to save&nbsp;</span><span style="line-height: 1.4em;">money by sharing operating expenses?&nbsp;</span><span style="line-height: 1.4em;">Would the union provide the opportunity&nbsp;</span><span style="line-height: 1.4em;">to take on a project or expand the&nbsp;</span><span style="line-height: 1.4em;">organization&rsquo;s reach in a way that would&nbsp;</span><span style="line-height: 1.4em;">not otherwise be possible?</span><span style="line-height: 1.4em;">&nbsp;</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;<a href="http://www.ksmcpa.com/scott-a-schuster" ><u>Scott A. Schuster</u></a></span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></div><p><a href="http://www.ksmcpa.com/prepare-now-for-aca-play-or-pay-compliance" ><span style="font-weight: 700;"><span style="line-height: 1.4em;">Prepare Now for ACA&nbsp;</span></span><span style="line-height: 1.4em;"><span style="font-weight: 700;">Play-or-Pay Compliance</span></span></a><br /><span style="line-height: 1.4em;">The Affordable Care Act&rsquo;s (ACA) shared-responsibility&nbsp;</span><span style="line-height: 1.4em;">provisions, commonly&nbsp;</span><span style="line-height: 1.4em;">referred to as &ldquo;play or pay,&rdquo; have been&nbsp;</span><span style="line-height: 1.4em;">delayed until 2015. Some &ldquo;transitional&nbsp;</span><span style="line-height: 1.4em;">relief&rdquo; also will be available, but that does&nbsp;</span><span style="line-height: 1.4em;">not mean your nonprofit can afford to&nbsp;</span><span style="line-height: 1.4em;">sit back on its heels.&nbsp;</span><span style="line-height: 1.4em; font-size: 12px;"><font color="#9a9999">By&nbsp;</font>William Graff</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">, JD, LL.M</span></p><div><a href="http://www.ksmcpa.com/ubit-can-take-a-bite-out-of-alternative-investments" ><span style="font-weight: 700;">UBIT Can Take a Bite Out&nbsp;</span><span style="line-height: 1.4em;"><span style="font-weight: 700;">of Alternative Investments</span></span></a><br /><span style="line-height: 1.4em;">The uncertain economy and tempestuous&nbsp;</span><span style="line-height: 1.4em;">financial markets of recent years have&nbsp;</span><span style="line-height: 1.4em;">led some nonprofit organizations to turn&nbsp;</span><span style="line-height: 1.4em;">to alternative investments. While these&nbsp;</span><span style="line-height: 1.4em;">investments may hold the potential&nbsp;</span><span style="line-height: 1.4em;">of higher returns, they also come with&nbsp;</span><span style="line-height: 1.4em;">the risk of unrelated business income&nbsp;</span><span style="line-height: 1.4em;">tax (UBIT).&nbsp;</span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;<u><a href="http://www.ksmcpa.com/casse-l-tate" >Casse Tate</a></u></span><span style="line-height: 1.4em; color: rgb(154, 153, 153); font-size: 12px;">, CPA, MS</span></div><p><a href="http://www.ksmcpa.com/newsbits-profitable-solutions-for-nonprofits-spring-summer-2014" ><span style="font-weight: 700;">Newsbits</span></a><br /><span style="line-height: 1.4em;">The U.S. Department of the Treasury&nbsp;</span><span style="line-height: 1.4em;">and the Internal Revenue Service&nbsp;</span><span style="line-height: 1.4em;">(IRS) have issued initial proposed&nbsp;</span><span style="line-height: 1.4em;">guidance on how applicants qualify for&nbsp;</span><span style="line-height: 1.4em;">tax-exempt status as a social welfare&nbsp;</span><span style="line-height: 1.4em;">organization under Section 501(c)&nbsp;</span><span style="line-height: 1.4em;">(4) of the Internal Revenue Code.</span></p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s&nbsp;<em>Profitable Solutions for Nonprofits</em>&nbsp;is a quarterly newsletter that focuses on tax and accounting issues for the not-for-profit industry.</p><div style="border-top: 1px solid #ccc; margin: 10px 0 6px;">&nbsp;</div><p><br />&nbsp;</p>ameyer@ksmcpa.com (Amanda Meyer)Wed, 25 Jun 2014 18:50:00 GMTForeign Financial Account Reporting: Form 114 Deadline June 30http://www.ksmcpa.com/news-blog/foreign-financial-account-reporting-form-114-deadline-june-30
<p>The Internal Revenue Service (IRS) has consistently increased its emphasis on compliance related to reporting of foreign financial assets. A U.S. taxpayer who has an interest in or signature authority over certain foreign financial accounts and/or certain foreign financial assets must disclose such holdings annually. Failure to comply with this reporting obligation can result in significant monetary penalties and exposure to criminal prosecution. Additionally, it may result in the statute of limitations related to the affected income tax returns staying open indefinitely. &nbsp;</p><p>The reporting rules can often feel circular and/or duplicative. Individuals must comply with the following process:&nbsp;</p><ol><li>Check the box on Part III, line 7a, on Schedule B of the Form 1040 to report that you had a financial interest or signature authority over a financial account (bank account, securities account, brokerage account, etc.) located in a foreign country.<br />&nbsp;</li><li>If the aggregate value(s) of the foreign accounts exceed $10,000 at any time during the calendar year, the taxpayer must also file a FinCEN Form 114 (formerly known as TD F 90-22.1) and commonly referred to as an FBAR filing (Report of Foreign Bank and Financial Accounts). This filing MUST be done electronically with the Treasury Department and not the IRS. It is not filed with any tax return and it is due no later than June 30 of the next year with no extensions available.<br />&nbsp;</li><li>Additionally, if the account balances and the foreign financial asset values are greater than the threshold amounts listed below, Form 8938 (Statement of Specific Foreign Financial Assets) must also be filed as an attachment to the individual&rsquo;s income tax return.
<ul><li><span style="line-height: 1.4em;">For taxpayers with a filing status of &ldquo;Single,&rdquo; Form 8938 must be filed if the balances/value of the accounts as of the last day of the year are more than $50,000 or were more than $75,000 at any time during the year.</span><br />&nbsp;</li><li><span style="line-height: 1.4em;">For taxpayers with a filing status of &ldquo;Married Filing Joint,&rdquo; Form 8938 must be filed if the balances/value of the accounts as of the last day of the year are more than $100,000 or were more than $150,000 at any time during the year.&nbsp;</span></li></ul></li></ol><p>If it is determined that there are undisclosed foreign accounts, there are a couple of ways for the U.S. taxpayer to proceed:&nbsp;</p><ol><li>Begin proper compliance on a go forward basis &ndash; this is generally not recommended. It can be high risk given the potential for significant penalties.<br />&nbsp;</li><li>Quiet disclosures &ndash; before discovered under audit by the IRS, the taxpayer files amended income tax returns and FBARs for the missed filings. If there was no income generated or all income was reported but an information return was missed, this may be the best course of action. If there was unreported income associated with the failure to file, this is generally not recommended.<br />&nbsp;</li><li>Enter the IRS Offshore Voluntary Disclosure Program &ndash; this program allows taxpayers to come forward and voluntarily report previously unreported income. By entering this program, the account owner must agree to be subject to examination based on a wider statute of limitations as well as agree to a 27.5% penalty based on the foreign asset values, a 20% accuracy penalty on the amount of income tax due, and interest on the late payment of the income taxes. However, it removes the potential for criminal prosecution as well as the potential for penalties as high as $100,000 or 50% of the highest account value PER violation.&nbsp;</li></ol><p>The penalties associated with not disclosing foreign accounts can be severe and have a dramatic financial impact. We encourage all taxpayers to review their accounts and make sure that they are correctly meeting all filing requirements. &nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 25 Jun 2014 16:45:00 GMTLitigation Services Bulletin - Spring 2014http://www.ksmcpa.com/news-blog/litigation-services-bulletin-spring-2014
<p><span style="font-weight: 700;"><span style="font-size: 18px;">In This Issue:</span></span></p><p><a href="http://www.ksmcpa.com/apple-v-samsung-a-battle-ends-but-the-war-is-likely-far-from-over" ><span style="font-weight: 700;"><em>Apple v. Samsung:</em>&nbsp;A Battle Ends, but the War Is Likely Far from Over</span></a><br />Between Apple and Samsung, more than half of all smartphones purchased worldwide are sold by either of the two mobile device manufacturers. As a result of this fierce competition, Apple and Samsung have been embroiled in more than 50 lawsuits around the world in what has become known as the &ldquo;smartphone patent wars.&rdquo;<br /><span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/jay-r-cunningham" target=""><span style="font-size: 12px;">Jay R. Cunningham</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/in-daubert-attack-valuation-expert-portrayed-as-mere-mouthpiece" ><span style="font-weight: 700;">In&nbsp;<em>Daubert</em>&nbsp;Attack, Valuation Expert Portrayed as Mere Mouthpiece</span></a><br />Valuation experts often build on someone else&rsquo;s assumptions to make reliable calculations. But can an expert simply evaluate and validate information from others without testing the underlying assumptions or conducting an independent analysis? A recent lost profits case illustrates.<br /><br /><a href="http://www.ksmcpa.com/reliable-delaware-chancery-scrutinizes-precrisis-projections" ><span style="font-weight: 700;">Reliable or Obsolete? Delaware Chancery Scrutinizes Precrisis Projections</span></a><br />Five years after the 2008 economic meltdown, observers look back with a good deal of hindsight. But when the Delaware Court of Chancery recently assessed the reliability of pre-recession management projections for its discounted cash flow analysis (DCF), hindsight is precisely what it wanted to avoid.<br /><br /><a href="http://www.ksmcpa.com/never-assume-royalty-base-analysis-ends-with-finding-smallest-salable-unit" ><span style="font-weight: 700;">Never Assume Royalty Base Analysis Ends with Finding Smallest Salable Unit, Court Cautions</span></a><br />Being a plaintiff&rsquo;s damages expert in the intellectual property arena may be one of the hardest jobs in valuation these days. That was one of the messages that resonated from the American Institute of Certified Public Accountants (AICPA) Forensic &amp; Valuation Services Conference 2013 in Las Vegas.<br /><br /><a href="http://www.ksmcpa.com/harsh-words-from-the-court-for-underperforming-experts" ><span style="font-weight: 700;">Harsh Words from the Court for Underperforming Experts</span></a><br />Valuation experts who take on an engagement for which they lack the qualifications or the time risk a tongue-lashing in court, as a recent bankruptcy case demonstrates.</p><p><a href="http://www.ksmcpa.com/daubert-tolerates-impeachable-aspects-of-expert-testimony" ><span style="font-weight: 700;"><em>Daubert&nbsp;</em>Tolerates Impeachable Aspects of Expert Testimony</span></a><br />In appealing a $16 million jury award to Alaska Rent-A-Car for the breach of a settlement agreement, Avis claimed the plaintiff&rsquo;s expert made unsupportable assumptions and comparisons regarding the market and other car rental companies that compromised his calculations.</p><p>&nbsp;</p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s&nbsp;<em>Litigation Services Bulletin</em>&nbsp;is a quarterly newsletter that focuses on the latest developments in litigation services and financial damages expert consulting.&nbsp;</p><div><div style="border-top: 1px solid #ccc; margin: 10px 0 6px;">&nbsp;</div><p>&nbsp;</p></div><p><br />&nbsp;</p>ameyer@ksmcpa.com (Amanda Meyer)Wed, 25 Jun 2014 14:08:00 GMTState & Local Tax Update - 5/27/14http://www.ksmcpa.com/news-blog/state-local-tax-update-5-27-14
<p><span style="font-family: Arial; font-size: large; font-weight: bold; line-height: normal;">2014 Trending for Indiana Real Property Taxes</span></p><p>Indiana has achieved on-time property tax billing with all 92 counties having printed and mailed their tax bills for 2014. The spring 2014 tax bill was due Monday, May 12. The 2014 tax bill was calculated based upon the March 1, 2013, assessed value.</p><p>This is a perfect opportunity for property owners to review their assessed value and tax bill for accuracy. The assessed value should be representative of market value. One way to determine if your assessed value is accurate is to ask yourself, &ldquo;Could I sell my property for the assessed amount?&rdquo; If the answer is no, then there is still an opportunity to appeal your assessed value in many counties.</p><p>We would be happy to review the assessed value of your commercial property to help you consider whether an appeal should be filed. For assistance, contact your KSM advisor or KSM property tax leader <a href="http://www.ksmcpa.com/chad-m-miller">Chad Miller</a> as soon as possible.&nbsp;Or, use <a href="http://www.ksmcpa.com/indiana-property-tax-appeals" target="">KSM&#39;s property tax savings calculator</a> to calculate your potential savings.</p><div style="margin-top: 10px; margin-bottom: 6px; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(204, 204, 204);">&nbsp;</div><p><span style="font-weight: 700;">Idaho - Clarifies Taxability of Software: &nbsp;</span>Recently passed legislation provides and clarifies that the definition of taxable tangible personal property does not include custom computer programs, computer software that is delivered electronically, remotely accessed computer software, and computer software that is delivered by the load and leave method where the vendor or its agent loads the software at the user&#39;s location but does not transfer any tangible personal property containing the software to the user. &nbsp;In this context, the term &quot;remotely accessed computer software&quot; means computer software that a user accesses over the Internet, over private or public networks, or through wireless media, where the user has only the right use or access the software by means of a license, lease, subscription, service or other agreement. &nbsp;This law also provides and clarifies that taxable tangible personal property includes computer software that constitutes digital music, digital books, digital videos and digital games, regardless of the method by which the title, possession, or right to use such software is transferred to the user. &nbsp;(For more information, see <a href="http://www.legislature.idaho.gov/legislation/2014/H0598.pdf" target="_blank">H598, effective 07/01/2014</a>.)</p><p><span style="font-weight: 700;">Illinois - New Class of Motor Vehicles Subject to Rental Tax: &nbsp;</span>The Automobile Renting Occupation and Use Tax Act now includes rentals of any second division motor vehicle with a gross vehicle weight rating of 8,000 lbs.or less. &nbsp;Effective January 1, 2014, Illinois automobile rental companies must collect automobile renting occupation and use tax on this class of vehicle, which includes pickup trucks and sport utility vehicles. &nbsp;The Department clarifies that if taxpayers paid sales and use tax on a second division vehicle, no credit will be received because the tax paid was lawfully owed at the time of purchase. &nbsp;(For more information, see <a href="http://tax.illinois.gov/Publications/Bulletins/2014/FY-2014-09.pdf" target="_blank">Informational Bulletin FY 2014-09</a>.)</p><p><span style="font-weight: 700;">Kentucky - Unclaimed Property Dormancy Period Changes: &nbsp;</span>Effective April 10, 2014, KRS 393.068 has been updated to provide that all tangible personal property, including choses in action in amounts certain, and all debts owed or entrusted funds or other property held by the federal government is presumed abandoned if after three years (previously five years) from its acquisition, it remains unclaimed. &nbsp;(For more information, see <a href="http://www.lrc.ky.gov/record/14RS/HB445.htm" target="_blank">KY HB445</a>.)</p><p><span style="font-weight: 700;">Minnesota - Guidance Provided on Sales Tax Exemption for Isolated/Occasional Sales: </span>The Minnesota Department of Revenue has revised a release that explains the exemption from sales and use tax for certain isolated and occasional sales. &nbsp;This exemption applies only in specified circumstances and does not apply to: sales of inventory; sales that happen in the normal course of a taxpayer&#39;s business; sales of goods and equipment that are primarily used in the taxpayer&#39;s trade or business; and leases of tangible personal property. Sales of substantially all of the assets of a trade or business qualify if certain conditions are met. &nbsp;(For more information, see <a href="http://www.revenue.state.mn.us/businesses/sut/factsheets/FS132.pdf" target="_blank">Minnesota Sales Tax Fact Sheet 132, 04/01/2014</a>.)</p><p><span style="font-weight: 700;">Ohio - Annual CAT Filing Deadline Reminder: &nbsp;</span>The first quarter 2014 CAT return is due May 12, 2014. &nbsp;For all annual CAT taxpayers, the 2013 annual is also due on May 12, 2014. Taxpayers may file and pay electronically through the Ohio Business Gateway; annual filers may also use TeleFile. &nbsp;As a reminder, for tax periods beginning on January 1, 2014 and thereafter, the annual minimum tax (AMT) will become a tiered structure and taxpayers will pay an amount that corresponds with their overall commercial activity. &nbsp;Taxpayers should use the prior calendar year&#39;s taxable gross receipts to determine the current year&#39;s AMT.</p><p><span style="font-weight: 700;">Texas - Claification of COGS Deduction in Combined Group: &nbsp;</span>A taxpayer filing a combined return was granted a franchise tax refund based on a correctly calculated cost-of-goods-sold (COGS) deduction for the combined groups. &nbsp;Based on several statutory provisions relating to the determination of taxable margin, on combined reporting, and COGS calculation, it was apparent that the franchise tax is intended to apply to all members of a combined group as if they were a single taxpayer. &nbsp;Therefore, in determining the COGS, each member of a combined group&#39;s business is considered as a whole so that a member that does not sell any goods itself may nevertheless deduct as COGS those expenses it incurs to sell goods owned by another member of the combined groups. &nbsp;(For more information, see <a href="http://www.search.txcourts.gov/SearchMedia.aspx?MediaVersionID=9217fa9d-42d3-4fa0-8bd8-c180f3ab6987&amp;coa=coa03&amp;DT=Opinion&amp;MediaID=94188a1d-e56d-483f-87f2-441adaf65823" target="_blank">Combs et al. v. Newpark Resources, Inc., Tex. Ct. App., 3d Dist., Dkt No. 03-12-00515-CV, 12/31/2013</a>.)</p><p><span style="font-weight: 700;">Utah - Misinformation Provided by State: Tax Upheld: &nbsp;</span>The State Tax Commission denied a taxpayer&#39;s request for a waiver of the tax assessed that resulted from the disallowance of a health benefit plan credit. &nbsp;The taxpayer relied on information provided by the Commission to prepare the originally filed return, but was denied credit upon audit. Prior to preparing her return, the taxpayer&#39;s paid preparer attended two Utah State Tax Commission training sessions, consulted the Commission&#39;s website, and reviewed the 2009 TC-40 instructions, all of which showed that the taxpayer qualified for the credit. &nbsp;The Commission explained that it noticed the misinformation, but it was not corrected until the end of the 2009 filing season. &nbsp;Therefore, the misinformation caused the taxpayer to incorrectly file for the credit for 2009. &nbsp;Thus, the taxpayer showed reasonable cause, and a waiver of interest was granted. &nbsp;However, the taxpayer could not receive a waiver of the correctly assessed audit tax based on misinformation, as there is no section in the Utah Code authorizing a waiver based on misinformation from the Tax Commission. &nbsp;(For more information, see <a href="http://tax.utah.gov/commission/decision/12-1866.pdf" target="_blank">Appeal No. 12-1866, 05/28/2013 (released April 2014)</a>.)&nbsp;</p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p><p><span style="font-weight: 700;"><img align="left" alt="" height="94" src="https://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/1362a184-f744-41fe-bfb3-e9754de9dee5/donna-l.-niesen-final.jpg" style="width:94px;height:94px;margin-top:0px;margin-right:10px;margin-bottom:0px;margin-left:0px;border:0px" title="" width="94" />About the Author</span><br /><a href="http://www.ksmcpa.com/donna-l-niesen" >Donna Niesen</a> is a partner in Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/state-local-tax" >State and Local Tax Practice</a>. Donna provides a wide variety of tax consulting services in the areas of multistate sales and income taxes, business incentives, controversy services, and other state taxes.</p><p class="ksm-separator-line">&nbsp;</p>ameyer@ksmcpa.com (Amanda Meyer)Tue, 27 May 2014 16:48:00 GMT2014 Indiana Legislative Updatehttp://www.ksmcpa.com/news-blog/2014-indiana-legislative-update
<p><span style="font-weight: 700;"><span style="font-size: 18px;">In This Issue:</span></span></p><p><a href="http://www.ksmcpa.com/2014-legislative-update-welcome-message" ><span style="font-weight: 700;">Welcome Message</span></a><br />A popular reality show features the tagline, &ldquo;Expect the unexpected!&rdquo; Well, the same can be said for this past session of the Indiana legislature. Not that the Indiana General Assembly resembles reality TV &ndash; except for the nonstop drama, behind-the-scenes deal-making, fights between family members, and legislators facing the threat of being voted off the island (i.e., out of office). Still, much of what happened in 2014 was unexpected.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/tim-c-cook" ><span style="font-size: 12px;">Tim C. Cook</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, JD</span></p><p><a href="http://www.ksmcpa.com/2014-sales-and-use-tax" ><span style="font-weight: 700;">Sales and Use Tax</span></a><br />Ind. Code &sect; 6-2.5-2-2 (amendment), effective July 1, 2014, and enacted by Senate Bill 161, permits a seller to round sales tax on an item basis or invoice basis and also restricts a seller from using an item basis to circumvent tax that would be imposed if an invoice basis were used.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><span style="font-size: 12px;"><a href="http://www.ksmcpa.com/donna-l-niesen" >Donna L. Niesen</a></span><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA, and Tim Conrad, JD</span></p><p><a href="http://www.ksmcpa.com/2014-income-tax" ><span style="font-weight: 700;">Income Tax</span></a><br />Ind. Code &sect; 6-3-2-1 (amendment), effective July 1, 2014, and enacted by Senate Bill 1, reduces the corporate income tax rate by continuing the stair-stepped reductions already in place. Upon completion of the reductions, the new rate will be lowered from 6.5% to 4.9%. This is accomplished through 0.25% reductions from 2016 to 2020 with a final reduction of 0.35% in 2021.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><span style="font-size: 12px;"><a href="http://www.ksmcpa.com/donna-l-niesen" >Donna L. Niesen</a></span><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA, and Amy Zimmer</span></p><p><a href="http://www.ksmcpa.com/2014-economic-development-and-tax-credits" ><span style="font-weight: 700;">Economic Development and Tax Credits</span></a><br />Ind. Code &sect; 2-5-3.2-1 to 2-5-3.2-1 (addition), effective July 1, 2014, enacted by House Bill 1020, directs the Commission on State Tax and Financing Policy to conduct a detailed review of all tax incentives, defined broadly to include exemptions, deductions, preferential rates, or other tax benefits that reduces a tax burden. Requires incentive programs to be reviewed at least once every five years from the effective date to 2023.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/tim-c-cook" ><span style="font-size: 12px;">Tim C. Cook</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, JD, and&nbsp;</span><span style="color: rgb(154, 153, 153); font-size: 12px;">Tim Conrad, JD</span></p><p><a href="http://www.ksmcpa.com/2014-property-tax" ><span style="font-weight: 700;">Property Tax</span></a><br />Ind. Code &sect; 6-1.1-1-2 (amendment) &amp; 6-1.1-2-1.5 (addition), effective July 1, 2014, enacted by Senate Bill 420, moves the assessment date for tangible property from March 1 to Jan. 1 beginning in 2016. Moves the assessment date for mobile homes from Jan. 15 to Jan. 1 beginning in 2017.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><span style="font-size: 12px;"><a href="http://www.ksmcpa.com/chad-m-miller" >Chad Miller</a>&nbsp;</span><span style="color: rgb(154, 153, 153); font-size: 12px;">and&nbsp;<a href="http://www.ksmcpa.com/heather-judy" >Heather Judy</a>, CPA</span><br /><br /><a href="http://www.ksmcpa.com/2014-other-taxes-and-unclaimed-property" ><span style="font-weight: 700;">Other Taxes and Unclaimed Property</span></a><br />Ind. Code &sect; 5-14-3-4 (amendment), effective upon passage, enacted by Senate Bill 208, prohibits certain information included in a report of unclaimed property from being disclosed under Indiana&rsquo;s access to public records law. Excluded information includes date of birth, driver&rsquo;s license number, taxpayer identification number, employer identification number and account numbers.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/tim-c-cook" ><span style="font-size: 12px;">Tim C. Cook</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, JD, and&nbsp;</span><span style="color: rgb(154, 153, 153); font-size: 12px;">Tim Conrad, JD</span></p><p><a href="http://www.ksmcpa.com/2014-local-taxation" ><span style="font-weight: 700;">Local Taxation</span></a><br />Ind. Code &sect; 6-3.5-1.1-9 (amendment), effective July 1, 2014, enacted by Senate Bill 176, adds the requirement that a pledge of County Adjusted Gross Income Tax (CAGIT) revenues must have been for property tax relief or public safety.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><span style="font-size: 12px;"><a href="http://www.ksmcpa.com/donna-l-niesen" >Donna L. Niesen</a></span><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA, and Amy Zimmer</span></p><p><a href="http://www.ksmcpa.com/2014-tax-administration" ><span style="font-weight: 700;">Tax Administration</span></a><br />Ind. Code &sect; 6-8.1-4-4 (amendment), effective July 1, 2014, enacted by House Bill 1380, permits the commissioner of the Department of State Revenue to deny or suspend certain vehicle permits if escort fees to the state police department are delinquent.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><span style="font-size: 12px;"><a href="http://www.ksmcpa.com/donna-l-niesen" >Donna L. Niesen</a></span><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA, and Tim Conrad, JD</span></p><p><span style="font-weight: 700;"><a href="http://www.ksmcpa.com/2014-insider-insights" >Insider Insights</a></span><br />KSM recently partnered with the Indiana Manufacturers Association (IMA) on the 2013 Indiana Manufacturing Survey, an annual taking-of-the-temperature of manufacturers across Indiana. Given the tax-centric findings contained in this year&rsquo;s survey, we thought it would be enlightening to discuss the results of the survey, and other Indiana tax issues, with an expert in tax policy. With this goal in mind, we were fortunate that Tim Rushenberg, vice president of Governmental Affairs &amp; Tax Policy for the IMA, agreed to share his insights with us.&nbsp;</p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p><div><p>Katz, Sapper &amp; Miller&rsquo;s&nbsp;<a href="http://www.ksmcpa.com/2014-indiana-legislative-update" ><em>2014</em>&nbsp;<em>Indiana Legislative Update</em></a>&nbsp;summarizes the tax and economic development legislative changes that occurred in the Indiana General Assembly.</p><p class="ksm-separator-line" style="width: 591px;">&nbsp;</p></div><p>&nbsp;</p>ameyer@ksmcpa.com (Amanda Meyer)Thu, 24 Apr 2014 15:48:00 GMTKSM & McLeod Software Announce New Operations Performance Benchmarking Projecthttp://www.ksmcpa.com/news-blog/ksm-mcleod-software-announce-new-operations-performance-benchmarking-project
<p>Indianapolis, Ind. &ndash; <a href="http://www.mcleodsoftware.com/" target="_blank">McLeod Software</a> and <a href="http://www.ksmcpa.com/transportation" target="">Katz, Sapper &amp; Miller</a> (KSM) have come together to create a joint project to provide an operations level benchmark for the trucking industry. This initiative seeks to break new ground in giving truckload carriers the opportunity to measure the real performance of their operations against their peers.</p><p>The <a href="http://www.ksmcpa.com/ksm-mcleod-benchmarking-project" target="">KSM &amp; McLeod Benchmarking Initiative</a> is designed to be complimentary to other benchmarking initiatives in the industry, and to break new ground for those companies who want to understand where their operating efficiencies stand as compared to similar carriers.</p><p>Carriers who participate in this first benchmark study will receive a copy of the final benchmark report, which includes the high, low, median, and average values for each benchmark category, as well as the group qualification parameters to allow for comparison of their results on each benchmark to those of their actual peer group.</p><p><strong>A look at operating metrics</strong></p><p>The benchmarking survey of operating metrics examines several aspects that are common performance indicators for every truckload carrier.</p><ul><li>People and headcount by category or role</li><li>Fuel consumption, expense, purchasing, and efficiency</li><li>Revenue miles, rates, and surcharges</li><li>Equipment counts and actual utilization</li><li>Safety profiles</li><li>Operating expenses</li></ul><p>And to create the truly valuable peer comparisons, we will segregate the benchmark data by several criteria that give carriers the chance to compare their metrics with their true peer group.</p><ul><li>Carriers of a similar size</li><li>Carriers with the same equipment types</li><li>Carriers with a similar length of haul</li></ul><p>The goal of the <a href="http://www.ksmcpa.com/ksm-mcleod-benchmarking-project" target="">KSM &amp; McLeod Benchmarking Initiative</a> is to begin to give truckload carriers a better picture of their relative performance in these areas than has previously been available.</p><p>Companies who would like to participate in the 2013 benchmarking program must collect and submit their data to KSM via a pre-formatted spreadsheet, and ensure that their data meets the strict definitions set out in our benchmarking data collection documents. KSM and McLeod will provide this data collection document, the definitions, and a copy of our confidentiality agreement to carriers upon request. The deadline for submissions to be included in the 2013 benchmark report is&nbsp;July 1, 2014.</p><p>For more information about joining this benchmarking project, contact Tim Almack at 317.580.2000 or <a href="mailto:talmack@ksmcpa.com">talmack@ksmcpa.com</a>.</p><p style="text-align: center;">####</p><p><strong>About Katz, Sapper &amp; Miller</strong><br />As one of the top 65 CPA firms in the nation, <a href="http://www.ksmcpa.com/transportation" target="">Katz, Sapper &amp; Miller</a> (KSM) has earned a reputation as a leader in the areas of accounting, tax and consulting services. KSM has provided tax and business consulting services to the trucking industry since its founding in 1942. Through the firm&rsquo;s experience with 100-plus trucking and logistics clients throughout North America, KSM has become a national service provider to the trucking industry. Learn more at <a href="http://www.ksmcpa.com/transportation" target="">ksmcpa.com</a>.</p><p>The firm provides additional services through <a href="http://www.ksmta.com/" target="">KSM Transport Advisors, LLC</a> (KSMTA), a part of the Katz, Sapper &amp; Miller Network. KSMTA exclusively services the trucking industry, providing freight network engineering and profit improvement services. Learn more at <a href="http://www.ksmta.com/" target="">ksmta.com</a>.</p><p><strong>About McLeod Software</strong><br />Since 1985, <a href="http://www.mcleodsoftware.com/" target="_blank">McLeod Software</a> has provided powerful transportation management and trucking software solutions to the trucking industry. These solutions are comprehensive and support integration with a broad array of complimentary logistics products. McLeod Software is a&nbsp;leader when it comes to software for trucking dispatch operations management, freight brokerage management, fleet management, document imaging, workflow, EDI, and business process automation solutions for trucking, freight brokerage, third party logistics, and shipper companies in the United States.&nbsp;Learn more at <a href="http://www.mcleodsoftware.com/" target="_blank">mcleodsoftware.com</a>.</p>dblackmon@ksmcpa.com (Donna Blackmon)Wed, 19 Mar 2014 19:04:00 GMTProfitable Solutions for Nonprofits - Winter 2014http://www.ksmcpa.com/news-blog/profitable-solutions-for-nonprofits-winter-2014
<p><strong><span style="font-size:18px;">In This Issue:</span></strong></p><p><a href="http://www.ksmcpa.com/tips-for-communicating-financial-information-to-the-board" ><strong>Tips for Communicating Financial Information to the Board</strong></a><br />While board members typically bring a variety of talents and expertise to an organization, they do not always have extensive experience with financial and accounting matters. So what is the best way to communicate the essential financial information they need to effectively serve the organization? <span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/peter-a-buck" ><span style="font-size: 12px;">Peter A. Buck</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/is-it-time-for-software-as-a-service" ><strong>Is It Time for Software as a Service?</strong></a><br />Nonprofits increasingly are following the path of for-profits and shunning traditional software arrangements for &ldquo;software as a service&rdquo; (SaaS) provided over the Internet for a monthly fee. The potential benefits make SaaS worth considering for nonprofits of all sizes, but some caveats are in order.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By </span><a href="http://www.ksmconsulting.com/matt-snively" target="_blank"><span style="font-size: 12px;">Matt Snively</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA, CIA</span></p><p><a href="http://www.ksmcpa.com/managing-staff-how-to-treat-the-real-gems-of-an-organization" ><strong>Managing Staff: How to Treat the Real Gems of an Organization</strong></a><br />The lagging economy of the past few years has caused many companies to make certain cuts and sacrifices, and nonprofit organizations are feeling these same pressures as well. Organizations have had to freeze wages or award minimum pay increases all while asking employees to take on new responsibilities.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By </span><a href="http://www.ksmcpa.com/d-mark-barnhart" ><span style="font-size: 12px;">D. Mark Barnhart</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPC, CERS</span></p><p><a href="http://www.ksmcpa.com/newsbits-profitable-solutions-for-nonprofits-winter-2014" ><strong>Newsbits</strong></a><br />A New Jersey court of appeals held that a charity that solicited and accepted a gift from a donor &ndash; knowing the donor&rsquo;s expressed purpose for the gift was to fund a particular aspect of the charity&rsquo;s mission &ndash; must return the gift, after it had unilaterally decided not to honor the purpose.</p><p class="ksm-separator-line">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/profitable-solutions-for-nonprofits-winter-2014" ><em>Profitable Solutions for Nonprofits</em></a> is a quarterly newsletter that focuses on tax and accounting issues for the not-for-profit industry.</p><p class="ksm-separator-line">&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 19 Mar 2014 13:42:00 GMTInaugural Technology Workforce Report Releasedhttp://www.ksmcpa.com/news-blog/inaugural-technology-workforce-report-released
<p>Last Friday, TechPoint released the <a href="https://docs.google.com/file/d/0BzGlwixIZHZPYmw4UEtNZGtrUUU/edit?pli=1" target="_blank"><em>Technology Workforce Report: Employment Trends and the Demand for Computer-Related Talent in Central Indiana</em></a>, the results of a study funded by the <a href="http://www.lillyendowment.org/" target="_blank">Lilly Endowment</a> and Katz, Sapper &amp; Miller. The report proved what many area businesses have long suspected: the tech job market has grown much faster than others in Central Indiana. What&rsquo;s more, this strong growth has occurred over the same period that saw a decline of 0.3 percent in all jobs nationally.</p><p>Why is this trend meaningful? And what&rsquo;s so special about tech jobs? <a href="http://blog.techpoint.org/blog/tim-duvall/5-reasons-you-should-care-about-techpoints-workforce-report" target="_blank">Read more on TechPoint.org</a>.</p><p><br />&nbsp;</p>jcody@ksmcpa.com (Jenina Cody)Tue, 18 Mar 2014 13:45:00 GMTTruck Times - Issue 1, 2014http://www.ksmcpa.com/news-blog/truck-times-issue-1-2014
<p><strong><span style="font-size:18px;">In This Issue:</span></strong></p><p><a href="http://www.ksmcpa.com/transportation-companies-benefit-from-new-capitalization-regs" ><b>Transportation Companies Benefit from New Capitalization Regs</b></a><br />Deciding what should be capitalized or expensed can be a painful process, particularly for companies that are fixed asset intensive. The temporary regulations that previously instructed taxpayers concerning capitalization (Regs 1.263(a) and 1.162(a)) were ambiguous, failing to set clear guidance on a variety of issues affecting capitalization.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By </span><a href="http://www.ksmcpa.com/randy-j-hooper" ><span style="font-size: 12px;">Randy Hooper</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/tax-implications-of-running-miles-between-the-u-s-and-canada" ><b>Tax Implications of Running Miles between the U.S. and Canada</b></a><br />The U.S. Department of Transportation recently released data showing that trade between the U.S. and Canada is on the rise. Trucking is at the forefront of U.S.-Canada trade as trucks were carrying nearly 54 percent of freight across international borders as reported in October 2013. As more companies evaluate taking on international routes, it is important to understand the tax implications of running miles across international borders.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><span style="font-size: 12px;">Nathan Potter</span><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/green-fleets-trucking-companies-explore-alternative-fuel-equipment-upgrades" ><b>Green Fleets: Trucking Companies Explore Alternative Fuel Equipment Upgrades</b></a><br />Alternative fueling is one of the hottest topics in the trucking industry today. Evidence could be seen at the sold out Natural Gas in Trucking Summit, hosted by the American Trucking Associations in the fall of 2012. And many state associations continued to demonstrate its growing popularity by including natural gas as a topic at their annual conventions throughout 2013.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><span style="font-size: 12px;">Matt Gard</span><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/client-spotlight-paschall-truck-lines-forms-100-esop" ><b>Client Spotlight: Paschall Truck Lines Forms 100% ESOP</b></a><br />In October 2013, Randall A. Waller, president and CEO of Paschall Truck Lines, Inc. (PTL), announced that PTL had sold 100 percent of its stock to its employees through an Employee Stock Ownership Plan (ESOP). Mr. Waller purchased the company from L.W. Paschall approximately 40 years ago. Today, PTL, also headquartered in Murray, operates approximately 1,130 tractors and has approximately 1,400 employees.</p><p class="ksm-separator-line">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/truck-times-issue-1-2014" ><em>Truck Times</em></a> is a bi-annual newsletter that focuses on the financial side of the transportation industry.</p><p class="ksm-separator-line">&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Tue, 18 Mar 2014 13:28:00 GMTUniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awardshttp://www.ksmcpa.com/news-blog/uniform-administrative-requirements-cost-principles-and-audit-requirements-for-federal-awards
<p>Final guidance was issued by the U.S. Office of Management and Budget on Dec. 26, 2013, which streamlines the federal government&rsquo;s requirements from eight existing OMB circulars into one document, <a href="https://www.federalregister.gov/articles/2013/12/26/2013-30465/uniform-administrative-requirements-cost-principles-and-audit-requirements-for-federal-awards#h-4" target="_blank"><em>Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards</em></a>. The objectives of the guidance are to ease administrative burden and strengthen oversight of federal funds to reduce risks of waste, fraud and abuse.</p><p>The consolidated guidance eliminates duplicative and conflicting provisions, includes provisions that focus on performance over compliance, and encourages efficient use of information technology. Also, policies related to direct and indirect costs were updated to provide more consistent and transparent treatment, and language was strengthened in certain items of cost. The guidance includes a section of standard definitions of terms used throughout the final guidance and throughout many approved federal information collections used to manage federal awards.</p><p>The final guidance includes numerous additions, revisions and clarifications. Recipients of federal awards should review the final guidance to ensure compliance with federal award requirements.&nbsp; Selected notable items are included below:</p><ul><li>Requires non-federal entities to take reasonable measures to safeguard protected personally identifiable information as well as any information that the federal awarding agency or pass-through entity designates as sensitive. (Definitions of Personally Identifiable Information (PII) and Protected Personally Identifiable Information (PPII) are included in the guidance.)<br />&nbsp;</li><li>Requires federal agencies and pass-through entities to review the risk associated with a potential recipient prior to making an award.<br />&nbsp;</li><li>Requires disclosures of conflicts of interest and relevant criminal violations<br />&nbsp;</li><li>Expressly prohibits profit from federal awards (unless expressly authorized by the terms and conditions of the award).<br />&nbsp;</li><li>Requires certifications of senior non-federal entity officials (that includes awareness of potential penalties under the False Claims Act).<br />&nbsp;</li><li>Encourages non-federal entities to have family-friendly policies, including a provision that temporary dependent care costs that result directly from travel to conferences and meet specified standards, are allowable costs.</li></ul><p>Several provisions in the final guidance target audit requirements. These revisions are intended to strengthen oversight and focus audits where there is the greatest risk of fraud, abuse and waste in federal awards. The revisions include the following:</p><ul><li>Raises the Single Audit threshold from $500,000 of federal awards per year to $750,000 in federal awards per year. (The change in threshold will reduce the number of Single Audits by approximately 5,000 while maintaining 99.7 percent of current coverage of federal award dollars.)<br />&nbsp;</li><li>Increases the minimum threshold to determine whether a program is a Type A or Type B program from $300,000 to $750,000. (Type A programs are more likely to be selected to be audited as a major program during a Single Audit.)<br />&nbsp;</li><li>Specifies that a Type A program will automatically be selected to be audited as a major program in instances where the program was audited in the prior year and there were the following types of findings related to the program:
<ul><li>Modified opinion on compliance</li><li>Material weakness in internal controls over compliance</li><li>Questioned costs greater than five percent<br />&nbsp;</li></ul></li><li>Significant deficiencies in internal controls over compliance and other compliance findings will no longer require automatic selection of a Type A program as a major program in the subsequent year&rsquo;s Single Audit.<br />&nbsp;</li><li>Reduces overall coverage requirements during a Single Audit from 25 percent to 20 percent of federal awards for low-risk auditees and from 50 percent to 40 percent of federal awards for all other auditees.<br />&nbsp;</li><li>Refines the criteria for auditees to be considered a low-risk auditee.<br />&nbsp;</li><li>Makes single audit reports available to the public online.<br />&nbsp;</li><li>Requires the auditee to certify that there is no protected personally identifiable information in the Single Audit report upon submission to the Federal Audit Clearinghouse.<br />&nbsp;</li><li>No longer requires subrecipients to provide copies of their Single Audit reports to pass-through entities, since this information will be available online.</li></ul><p>The proposed guidance discussed streamlining the types of compliance requirements found in the Compliance Supplement from the existing 14 to six. Since the Compliance Supplement is published as part of a separate process, such changes were not included in the final guidance. Instead, this issue is expected to be addressed in future updates to the Compliance Supplement.</p><p>The guidance is effective immediately for federal agencies. For non-federal agencies, the guidance is effective as implementation policies are provided by the applicable federal agency and no later than Dec. 26, 2014. Guidance related to audit requirements is effective for years beginning after Dec. 26, 2014.</p><p class="ksm-separator-line">&nbsp;</p><p><span style="font-weight: 700;"><img align="left" alt="" height="95" src="https://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/f7c9e9e5-0fc5-4af3-8820-33efa696754a/amanda-mcginity-final.jpg" style="width:95px;height:95px;margin-top:0px;margin-right:10px;margin-bottom:0px;margin-left:0px;border:0px" title="" width="95" />Connect with Amanda&nbsp;</span><a href="http://www.linkedin.com/in/amcginity" target="_blank"><img align="" alt="" height="16" src="https://mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/0eefc1a8-fbf9-4f5c-a1dc-c375729ecc79/icon-linkedin.png" style="width: 16px; height: 16px; margin: 0px;" title="Connect with Amanda on LinkedIn" width="16" /></a><br /><a href="http://www.ksmcpa.com/amanda-j-mcginity" >Amanda McGinity</a>&nbsp;is a member of the firm&#39;s <a href="http://www.ksmcpa.com/assurance" >Audit and Assurance Services Department</a> and&nbsp;<a href="http://www.ksmcpa.com/not-for-profit" >Not-for-Profit and Governmental Services Groups</a>. She provides a variety of services, including financial statement audits, reviews and consulting projects involving compliance and internal control issues.</p><p class="ksm-separator-line">&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Mon, 17 Feb 2014 20:39:00 GMTIndiana Income Tax Credit for Natural Gas-powered Vehicleshttp://www.ksmcpa.com/news-blog/indiana-income-tax-credit-for-natural-gas-powered-vehicles
<p>Indiana has updated the way taxpayers claim the Natural Gas Commercial Vehicle Indiana Income Tax Credit. Now taxpayers can initiate their claim to a credit sooner by filing Indiana <a href="http://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/ce2c81eb-5844-4667-bc29-4aea0bd2e5f4/ngv-c-01-14-.pdf" target="_blank">Form NGV-C</a>. Previously, the method to claim this credit was on taxpayers&rsquo; timely filed Indiana tax returns. Since this credit is limited and awarded on a first-come, first-served basis, it was advantageous to file the Indiana tax return as early as possible. In lieu of this race to file, taxpayers can now start the process of securing a credit by filing&nbsp;<a href="http://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/ce2c81eb-5844-4667-bc29-4aea0bd2e5f4/ngv-c-01-14-.pdf" target="_blank">Form NGV-C</a>&nbsp;whenever qualifying purchases are made throughout the year.</p><p>Effective Jan. 1, 2014 through Dec. 31, 2016, <a href="http://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/ff0d882e-2f2c-4b25-8318-fa5befd7bc97/income-tax-information-bulletin-109-income-tax-credit-for-natural-gas-....pdf" target="_blank">Indiana is offering a tax incentive</a> for purchasing a qualified natural gas commercial vehicle. A qualified natural gas commercial vehicle is one that: 1) weighs more than 33,000 lbs.; 2) is powered by compressed natural gas (CNG) or liquefied natural gas (LNG); and 3) purchased from an Indiana dealer. The tax incentive can be used against the taxpayer&rsquo;s Indiana income, financial institutions tax, and/or premium tax.</p><p>The tax incentive is 50 percent of the difference in price between a CNG/LNG vehicle and the price of a comparable diesel/gasoline-powered vehicle. The tax incentive is limited to the lesser of the 50 percent difference or $15,000 per vehicle and $150,000 per taxpayer per year. Indiana has placed a global limit on this tax incentive of the lesser of $3 million per year or the sales tax collected on CNG/LNG fuel purchases, with a maximum of 200 credits available per year.</p><p>To claim the tax credit, taxpayers must complete&nbsp;<a href="http://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/ce2c81eb-5844-4667-bc29-4aea0bd2e5f4/ngv-c-01-14-.pdf" target="_blank">Form NGV-C</a>&nbsp;and attach documentation substantiating the purchase price of a comparable diesel/gasoline-powered vehicle (e.g., a quote from a dealer). Once the Form is received and accepted by the Indiana Department of Revenue, taxpayers will receive a certification number and instructions on how to claim this credit on their respective timely filed Indiana tax return.</p><p>For more information on alternative fuels, visit <a href="http://www.greaterindiana.com" target="_blank">greaterindiana.com</a>.</p><p class="ksm-separator-line">&nbsp;</p><p><span style="font-weight: 700;"><img align="left" alt="" height="95" src="https://mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/db329760-898e-44a4-941b-0196a7bc91cd/william-graff-final.jpg" style="width:95px;height:95px;margin-top:0px;margin-right:10px;margin-bottom:0px;margin-left:0px;border:0px" title="" width="95" /></span><span style="font-weight: 700;">Connect with William&nbsp;</span><a href="http://www.linkedin.com/pub/william-graff/7/a60/197" target="_blank"><img align="" alt="" height="16" src="https://mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/0eefc1a8-fbf9-4f5c-a1dc-c375729ecc79/icon-linkedin.png" style="width: 16px; height: 16px; margin: 0px;" title="Connect with William on LinkedIn" width="16" /></a><br />William Graff is a manager in Katz, Sapper &amp; Miller&rsquo;s&nbsp;<a href="http://www.ksmcpa.com/tax" target="">Tax Department</a>. He&nbsp;<br />provides consulting services to a diverse clientele on technical tax matters. William specializes in federal credits, excise tax, and the Patient Protection and Affordable Care Act. He frequently leads seminars on federal tax issues.</p><p class="ksm-separator-line">&nbsp;</p><p><span style="font-weight: 700;"><img align="left" alt="" height="95" src="https://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/586528bb-1787-45b1-ad20-ebaca4234ada/troy-hogan-final.jpg" style="width:95px;height:95px;margin-top:0px;margin-right:10px;margin-bottom:0px;margin-left:0px;border:0px" title="" width="95" /></span><span style="font-weight: 700;">Connect with Troy&nbsp;</span><a href="http://www.linkedin.com/pub/troy-hogan/14/6ba/8b7" target="_blank"><img align="" alt="" height="16" src="https://mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/0eefc1a8-fbf9-4f5c-a1dc-c375729ecc79/icon-linkedin.png" style="width: 16px; height: 16px; margin: 0px;" title="Connect with Troy on LinkedIn" width="16" /></a><br /><a href="http://www.ksmcpa.com/troy-d-hogan" >Troy Hogan</a> is a director in Katz, Sapper &amp; Miller&#39;s Business Advisory Group and a member of the firm&#39;s <a href="http://www.ksmcpa.com/transportation" >Transportation Services Group</a>. He has extensive experience in tax planning, tax compliance, and financial statement analysis as well as managing business issues specific to the transportation industry.</p><p class="ksm-separator-line">&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 12 Feb 2014 16:14:00 GMTState & Local Tax Update - 2/6/14http://www.ksmcpa.com/news-blog/state-local-tax-update-2-6-14
<p><span style="font-weight: 700;">Personal Property Tax and 263(a)</span><br />For companies taking advantage of the new 263(a) rules for federal tax purposes, it is important to remember that for personal property tax purposes there may not be a de minimis safe harbor application. For income tax purposes it may be acceptable to expense individual fixed assets costing $5,000 or less; for personal property tax returns, these assets may still be considered assessable and taxable. If you choose to take advantage of the new 263(a) rules and expense assets costing $5,000 or less, you may want to consider keeping a second set of records for personal property reporting.</p><div>As a reminder, some states exempt personal property; however, many states do impose a personal property tax and due dates are fast approaching. Now is a good time to review your asset listing to ensure all personal property tax filing deadlines are met.</div><div>&nbsp;</div><div>Feel free to reach out to your KSM advisor with any questions regarding the effect of Section 263(a) and personal property reporting.</div><div style="margin-top: 10px; margin-bottom: 6px; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(204, 204, 204);">&nbsp;</div><p><strong>Alabama Issues Guidance on Sales Tax Exemption for Government Contractors</strong><br />A new sales and use tax exemption applies to the purchase of building materials, construction materials and supplies, and other tangible personal property that become part of a structure pursuant to a qualifying contract entered into on or after Jan. 1, 2014. Qualifying projects and contracts are those generally entered into with the following governmental entities: the State of Alabama, a county or incorporated municipality of Alabama, an Alabama public school, or an Alabama industrial or economic development board or authority already exempt from sales and use taxes. The Department cautions that contracts entered into with the federal government and contracts pertaining to highway, road or bridge construction or repair do not qualify for the exemption provided for in the Act. The Act requires the Department to issue a Form STC-1 (Sales and Use Tax Certificate of Exemption for Government Entity Projects) to all contractors and subcontractors working on qualifying governmental entity projects once a completed Form ST: EXC-01 is approved by the Department. Contractors and sub-contractors for qualifying projects will be required to file monthly consumers use tax returns and report all exempt purchases for ongoing projects, as well as all taxable purchases on one return. See&nbsp;<a href="http://revenue.alabama.gov/salestax/Contractor_Notice_20140121.pdf" target="_blank">Notice, Alabama Department of Revenue, 01/21/2014</a>.</p><p><strong>California Reminds of New 1031 Filing Requirements</strong><br />Effective Jan. 1, 2014, a new annual filing requirement has been created for taxpayers who exchange property located in California for like-kind replacement properties located outside California. The new information return, referred to as a California 1031 Information Return, remains in development, but the Franchise Tax Board (FTB) has indicated that it intends to track the California sourced portion for the taxpayer&#39;s previously-deferred gain or loss when the non-California replacement property is ultimately sold, and such California sourced gain or loss that remains to be recognized by such taxpayers.</p><p>Some examples of specific information the FTB might request for each property and like-kind replacement property include: address or description of the property; parcel number, VIN, or HIN of the property; contract prices for each property and like-kind replacement property exchanged; California adjusted tax basis for each property; and debt amounts to which the exchanged properties were subject. See&nbsp;<a href="https://www.ftb.ca.gov/professionals/taxnews/2013/December/Article_8.shtml" target="_blank" title="California FTB Tax News 12/01/2013">California FTB Tax News 12/01/2013</a>.</p><p><strong>Kentucky Will Not Allow CPA Representatives Before BTA</strong><br />The Kentucky Board of Tax Appeals (BTA) recently announced that it will dismiss on its own initiative any petition of appeal filed by a non-lawyer on behalf of a legal entity or individual. Both court decisions and unauthorized practice of law opinions of the Kentucky Bar Association have ruled that non-lawyers may not represent legal entities or individuals in proceedings before administrative tribunals, including the BTA. An individual who is a non-lawyer cannot file a petition of appeal with the BTA on behalf of a legal entity or individual or otherwise represent that entity or individual in proceedings before the BTA. However, an individual may represent himself or herself in proceedings before the BTA concerning his or her own tax liability. See&nbsp;<a href="http://revenue.ky.gov/NR/rdonlyres/9BA15C3D-34CC-45FE-BFB6-0D346D93BAC5/0/KYTaxAlertNov2013.pdf" target="_blank" title="Kentucky Tax Alert 6, 11/01/2013">Kentucky Tax Alert 6, 11/01/2013</a>.</p><p><strong>Minnesota to Follow Federal Check-the-Box Rules</strong><br />Effective for taxable years beginning after Dec. 31, 2012, for Minnesota corporate franchise tax purposes, the Minnesota Department of Revenue will follow elections made by eligible domestic and foreign entities pursuant to federal regulations &sect; 301.7701-1 through &sect; 301.7701-3. The Department had previously based its position regarding federal check-the-box classifications on Minnesota Revenue Notice 98-08, 05/26/1998, but a 2013 Minnesota law amendment made the policy statement regarding foreign eligible entities in that Revenue Notice obsolete. See&nbsp;<a href="http://www.revenue.state.mn.us/law_policy/revenue_notices/RN_13-08.pdf" target="_blank" title="Minnesota Revenue Notice 13-08">Minnesota Revenue Notice 13-08</a>.</p><p><strong>North Carolina Issues Guidance on Taxability of Service Contracts</strong><br />Effective Jan. 1, 2014, the 4.75% general state and applicable local and transit rates of sales and use tax apply to the sales price of a service contract sold at retail by a retailer, and sourced to North Carolina. &quot;Service contract&quot; means a warranty agreement, a maintenance agreement, a repair contract, or a similar agreement or contract by which the seller agrees to maintain or repair tangible personal property. Further, the sales price of a service contract on or after Jan. 1, 2014, by which the seller agrees to maintain or repair taxable prewritten computer software pursuant to the contract is subject to the 4.75% general state and applicable local and transit rates of sales and use tax. Prior to Jan. 1, 2014, the taxability of the sale of a maintenance agreement for taxable prewritten computer software is determined primarily on whether such software maintenance agreement is mandatory and therefore a part of the sales price of the sale of the computer software, or whether such sale is for an optional maintenance agreement. See&nbsp;<a href="http://www.dornc.com/practitioner/sales/directives/SD-13-5.pdf" target="_blank" title="North Carolina Directive SD-13-5">North Carolina Directive SD-13-5</a>.</p><p><strong>Ohio Updates Individual Nexus Threshold</strong><br />The Ohio Department of Taxation has modified its information release that describes the standards it will apply to determine whether a nonresident is subject to Ohio&#39;s personal income tax. Modifications to &quot;safe harbor&quot; activities include increasing the number of days that a nonresident may be present in the state from seven to 20 days, and increasing gross income earned in the state from $2,500 to $10,000. In such instances, nexus with a nonresident might exist, but the Department will not require the filing of a return and the payment of the personal income tax if a nonresident&#39;s only contacts with Ohio are limited to the contacts in the list. The modifications are effective for tax year 2014 and onward. See&nbsp;<a href="http://www.tax.ohio.gov/Portals/0/ohio_individual/individual/information_releases/PIT%202014-01%20Safe%20Harbor.pdf" target="_blank" title="Ohio Tax Information Release PIT 2014-01">Ohio Tax Information Release PIT 2014-01</a>.</p><p>There are many rules surrounding nonresident withholding and composite returns filed by PTEs. Evaluation of the rules and the overall tax picture of the PTE and its owners is critical to ensure proper compliance and reduce the state tax burden of the PTE owners.</p><p class="ksm-separator-line">&nbsp;</p><p><span style="font-weight: 700;"><img align="left" alt="" height="94" src="https://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/1362a184-f744-41fe-bfb3-e9754de9dee5/donna-l.-niesen-final.jpg" style="width:94px;height:94px;margin-top:0px;margin-right:10px;margin-bottom:0px;margin-left:0px;border:0px" title="" width="94" />About the Author</span><br /><a href="http://www.ksmcpa.com/donna-l-niesen" >Donna Niesen</a> is a partner in Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/state-local-tax" >State and Local Tax Practice</a>. Donna provides a wide variety of tax consulting services in the areas of multistate sales and income taxes, business incentives, controversy services, and other state taxes.</p><p class="ksm-separator-line">&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Thu, 06 Feb 2014 22:32:00 GMTWhat Nonresidents Should Consider when Filing Compositehttp://www.ksmcpa.com/news-blog/what-nonresidents-should-consider-when-filing-composite
<p>States have a wide range of rules regarding how a nonresident shareholder/member/partner must report their share of state-sourced income. Most states either require or offer an election to the pass-through entity to file a composite return on the nonresident&rsquo;s behalf. A composite return is a return filed by the pass-through entity that reports the nonresident owner&rsquo;s share of state income, and calculates tax that is paid by the pass-through entity on behalf of the nonresident owner. Often, a composite return filed by the entity will eliminate the need for the nonresident to file an individual income tax return with that state. In the states that offer an election to participate in the composite return, nonresident owners must evaluate the consequences of an election and determine the impact on their overall tax liability and filing requirements.</p><p>Many factors should be considered by a nonresident owner when faced with the decision to opt in or opt out of a composite return, including:</p><ul><li><strong>Does the pass-through entity qualify to file a composite return?</strong> For example, in New York and Arizona, the entity must have a certain number of participating nonresident owners to be allowed to file a composite return.<br />&nbsp;</li><li><strong>Does the pass-through entity have to apply to file a composite return?</strong> If so, when does such application have to be completed?<br />&nbsp;</li><li><strong>Does the individual qualify to participate in a composite return?</strong> In some states, an individual may not participate in a composite return if the individual has multiple sources of income in that state. For instance, if an individual receives multiple state K-1s or the individual receives a state K-1 but also has direct rental income in a state, s/he may be prohibited from participating in the composite return filed by the pass-through entity.<br />&nbsp;</li><li><strong>Is a composite election binding?</strong> If the individual agrees to be in a composite return this year, is that binding to all future years, or can the election to file composite be made annually?<br />&nbsp;</li><li><strong>What does the individual give up by participating in the composite return?</strong> In exchange for the ease of filing as a composite participant, many states require the individual to give up certain benefits they would otherwise receive if they filed an individual return. Generally, benefits of a standard deduction, state exemptions and some state credits are only available to those who file an individual return and are not available at the composite level.<br />&nbsp;</li><li>Similarly, <strong>does the individual have state net operating losses, suspended losses and/or passive activity losses that they might lose by participating in the composite return?</strong><br />&nbsp;</li><li><strong>Is the tax rate applied on the composite return higher than the tax rate applicable if an individual return was filed?</strong> States that have a graduated tax rate for individuals often require the state-sourced income at the composite level to be taxed at the highest individual tax rate regardless of the amount of state-sourced income. For example, Kentucky composite tax is paid at the highest marginal tax rate for individuals.<br />&nbsp;</li><li><strong>Can the individual still file a return even if they have participated in a composite return?</strong> This process could allow a nonresident to recapture some of the rate differential that was discussed above.<br />&nbsp;</li><li><strong>If an individual return is allowed or required in addition to participation in the composite return, how is income calculated on the individual&rsquo;s return, and does the individual get to take credit for any composite tax paid by the entity on his behalf?</strong> For example, assume an individual has several sources of Massachusetts income and the individual is included in a Massachusetts composite return for one of the entities that issues him a Massachusetts K-1. However, the individual does not participate in any other composite filings related to his other Massachusetts income. He will still be required to file an individual return in Massachusetts to pay the tax on the remaining Massachusetts source income. When he files his Massachusetts return, he will only include his Massachusetts income that has not be accounted for or taxed as part of a composite return. In addition, he does not pick up the composite tax paid by the entity as a payment on the individual return. That may trigger an adverse situation that the taxpayer was not anticipating.<br />&nbsp;</li><li><strong>What is the complexity of the return filing process for completing a composite return versus individual return? And vice versa: What are the different forms and tax accounts that need to be set up with the state to receive composite payments, etc.?</strong></li></ul><p>The above is not an all-inclusive list of things to consider in determining whether a nonresident wants to opt in or opt out of a composite filing. This is merely a sampling of the things to be considered when making such a decision. Pros and cons need to be weighed in each situation. Please contact your KSM advisor to help you weigh the decision.</p><p class="ksm-separator-line">&nbsp;</p><p><span style="font-weight: 700;"><img align="left" alt="" height="95" src="https://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/635a1394-438e-4814-9fb6-5516705f983f/donna-l.-niesen-final.jpg" style="width:95px;height:95px;margin-top:0px;margin-right:10px;margin-bottom:0px;margin-left:0px;border:0px" title="" width="95" />About Donna</span><br /><a href="http://www.ksmcpa.com/donna-l-niesen" >Donna Niesen</a> is a partner in Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/state-local-tax" >State and Local Tax Practice</a>. Donna provides a wide variety of tax consulting services in the areas of multistate sales and income taxes, business incentives, controversy services, and other state taxes.</p><p class="ksm-separator-line">&nbsp;</p><p><span style="font-weight: 700;"><img align="left" alt="" height="95" src="https://mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/c3db2db0-86c8-449f-9d0e-b45becf38aab/alyson-lurker-final.jpg" style="width:95px;height:95px;margin-top:0px;margin-right:10px;margin-bottom:0px;margin-left:0px;border:0px" title="" width="95" />About Alyson</span><br />Alyson Lurker is a manager in Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/tax" target="">Tax Department</a>. Alyson provides services in tax compliance and consulting to a diverse clientele on technical tax matters. Her primary responsibilities include technical review of federal and state tax issues.</p><p class="ksm-separator-line">&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 05 Feb 2014 14:21:00 GMTStandards Updates – 1/28/14http://www.ksmcpa.com/news-blog/standards-updates-1-28-14
<p><strong>FASB Issues Two Accounting Standards Updates for Private Companies</strong></p><p>The Financial Accounting Standards Board (FASB) recently issued two Accounting Standards Updates (ASU) to provide alternatives for private companies on the subsequent accounting for goodwill and interest rate swaps. Both ASUs are consensuses of the Private Company Council and were endorsed by the FASB.</p><p>The FASB has defined a private company as the following: &ldquo;An entity other than a public business entity, a not-for-profit entity, or an employee benefit plan within the scope of Topics 960 through 965 on plan accounting.&rdquo; They also have defined a public business entity, which includes entities that are required by the SEC to file or furnish financial statements to the SEC and entities that meet various other criteria.</p><p>Entities that meet the definition of a private company may elect to adopt the following ASUs. Prior to making the election to adopt, companies should discuss with the users of the financial statements to ensure the users understand any potential impact of each of the ASUs adopted.</p><p>The following is a summary of each of the proposed ASUs:</p><ul><li><a name="top"></a><p style="display: inline !important;"><a href="#One" target="">ASU 2014-02, <em>Intangibles &ndash; Goodwill and Other (Topic 350): Accounting for Goodwill</em></a></p><br />&nbsp;</li><li><p style="display: inline !important;"><a href="#Two" target="">ASU 2014-03, <em>Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps &ndash; Simplified Hedge Accounting Approach</em></a></p></li></ul><div style="margin: 0px; border-top: #cccccc 1px solid">&nbsp;</div><p><a name="One"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a><a href="http://www.fasb.org/cs/ContentServer?c=Document_C&amp;pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176163744355" target="_blank"><strong>ASU 2014-02</strong></a><strong>, <em>Intangibles &ndash; Goodwill and Other (Topic 350): Accounting for Goodwill</em></strong></p><p>This ASU permits a private company to amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the entity demonstrates another useful life is more appropriate. A company electing this accounting alternative is required to make an accounting policy election to test goodwill for impairment at the entity level or the reporting unit level.</p><p>Under the alternative, goodwill should be tested for impairment when an event or changes in circumstances occurs (a triggering event) that indicates the fair value of the entity (or reporting unit) may be below its carrying amount. Upon such an event or changes in circumstances, a company may assess qualitative factors to determine whether it is more likely than not that the fair value is less than the carrying amount. Further testing is unnecessary when the qualitative assessment indicates it is not more likely than not that goodwill is impaired. Otherwise, a quantitative assessment is required. A company may elect to skip the qualitative assessment and perform the quantitative calculation. A goodwill impairment loss, if any, is recognized for the amount that the carrying amount of the entity (or reporting unit) exceeds the fair value.</p><p>Under current guidance, all companies are not allowed to amortize goodwill but are required to test for impairment at least annually. In addition under current guidance if it is determined the carry amount is greater than the fair value, a second step must be completed to determine the amount of the goodwill impairment loss. This second step has been eliminated for private companies adopting this ASU.</p><p>By allowing for the amortization of goodwill, the ASU is expected to reduce the likelihood of impairments and require private companies to test goodwill for impairment less frequently.</p><p>The ASU applies to all private companies, as defined, and is effective for annual periods beginning after Dec. 15, 2014, with early adoption permitted. If elected, the accounting alternative should be applied prospectively to goodwill existing as of the beginning of the year of adoption, and any new goodwill recognized in periods beginning after Dec. 15, 2014.</p><div style="margin: 0px; border-top: #cccccc 1px solid">&nbsp;</div><p><a name="Two"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a><a href="http://www.fasb.org/cs/ContentServer?c=Document_C&amp;pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176163744404"><strong>ASU 2014-03</strong></a><strong>, <em>Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps &ndash; Simplified Hedge Accounting Approach</em></strong></p><p>Under accounting principles generally accepted in the United States, an interest rate swap is a derivative instrument and recognized on the balance sheet as either an asset or a liability at fair value. Companies may elect hedge accounting if certain requirements are met to reduce income statement volatility due to changes in the swap&rsquo;s fair value.</p><p>This ASU provides an additional accounting alternative to private companies, the &ldquo;simplified hedge accounting approach,&rdquo; for certain swaps that are used to economically convert a variable-rate borrowing into a fixed-rate borrowing. Under this approach, an entity may assume no ineffectiveness provided that six criteria, which are specified in the ASU, are met. In addition, the ASU provides entities the option to measure the qualifying swap at settlement value instead of fair value.</p><p>Finally, private companies with less than $100 million in assets will not be required to include additional disclosures about the fair value of financial instruments not measured at fair value unless other derivatives are present. All other disclosures related to cash flow hedge accounting and fair value measurements still apply.</p><p>The ASU applies to all private companies other than financial institutions, as defined in the FASB <em>Codification</em>, and is effective for annual periods beginning after Dec. 15, 2014, with early adoption permitted. Private companies can elect to apply this approach to an existing qualifying swap, as well as swaps entered into after the date of this ASU, on a swap-by-swap basis.</p><p class="ksm-separator-line">&nbsp;</p><p><span style="font-weight: 700;"><img align="left" alt="" height="94" src="https://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/93920593-b267-4d22-98ac-d21834b5015e/ron-l.-smith-final.jpg" style="width:94px;height:94px;margin-top:0px;margin-right:10px;margin-bottom:0px;margin-left:0px;border:0px" title="" width="94" />Connect with Ron&nbsp;</span><a href="http://www.linkedin.com/in/ronsmithcpa" target="_blank"><img align="" alt="" height="16" src="https://mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/0eefc1a8-fbf9-4f5c-a1dc-c375729ecc79/icon-linkedin.png" style="width: 16px; height: 16px; margin: 0px;" title="Connect with Ron on LinkedIn" width="16" /></a><br />Ron Smith is a partner in Katz, Sapper &amp; Miller&#39;s <a href="http://www.ksmcpa.com/assurance" >Audit and Assurance Services Department</a>. Ron has extensive experience in, and advises clients and firm members on, accounting, financial reporting, auditing, compliance and internal control matters. He also oversees the firm&rsquo;s quality control system.</p><p class="ksm-separator-line">&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Tue, 28 Jan 2014 15:15:00 GMTConstruction & Real Estate Industry Advisor - Issue 2, 2013http://www.ksmcpa.com/news-blog/construction-real-estate-industry-advisor-issue-2-2013
<p><strong><span style="font-size:18px;">In This Issue:</span></strong></p><p><a href="http://www.ksmcpa.com/changes-in-gaap-on-the-horizon-for-privately-held-entities" ><strong>Changes in GAAP on the Horizon for Privately Held Entities</strong></a><br />When you think of the word &ldquo;contractor,&rdquo; what comes to mind? For me, it&rsquo;s <em>not</em> companies on the New York Stock Exchange. Yet, small and mid-size contractors must follow accounting rules that were designed with publicly traded entities in mind. As these rules have evolved, they have become more complex and costly to follow. This trend is what has driven the Financial Accounting Foundation (FAF) to consider the need for alternatives for privately held entities.<br /><span style="color: rgb(154, 153, 153); font-size: 12px;">By </span><span style="font-size: 12px;">Matt Bishop</span><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA, MBA</span></p><p><a href="http://www.ksmcpa.com/what-do-the-final-repair-and-maintenance-regulations-mean-for-your-business" ><strong>What Do the Final &ldquo;Repair and Maintenance&rdquo; Regulations Mean for Your Business?</strong></a><br />The Internal Revenue Service (IRS) issued final repair regulations Sept. 13, 2013. The new regulations are set to become effective Jan.1, 2014 and are mandatory for all taxpayers as of that date. Taxpayers are given the choice to make the election to follow the new repair regulations retroactively as of Jan. 1, 2012. The new rules will affect all taxpayers industry-wide that acquire, produce or improve tangible property.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><span style="font-size: 12px;">Sarah Hammond</span><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/production-activity-and-section-263a-uniform-capitalization-rules" ><strong>Production Activity and Section 263(a): Uniform Capitalization Rules</strong></a><br />The Uniform Capitalization (UNICAP) rules of Section 263(a) of the Internal Revenue Code (IRC) prescribe the method for determining the types and amounts of costs that must be capitalized rather than expensed in the current period. The UNICAP rules apply to those who, in the course of their trade or business, produce real or tangible property for use in the business or activity; produce real or tangible property for sale to customers; or acquire property for resale.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/jolaine-l-hill" target=""><span style="font-size: 12px;">Jolaine L. Hill</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/connecting-generations-in-the-work-place" ><strong>Connecting Generations in the Work Place</strong></a><br />Have you noticed anything different in your workplace lately? Depending on your perspective you might be saying to yourself, &ldquo;Where did all of these kids come from?&rdquo; Or you might be thinking, &ldquo;When is this dinosaur going to retire?&rdquo; Or still yet you might be wondering, &ldquo;How can that manager afford to leave every day at 5:00?&rdquo;&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By </span><a href="http://www.ksmcpa.com/james-m-nestor" ><span style="font-size: 12px;">James M. Nestor</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, SPHR</span></p><p><a href="http://www.ksmcpa.com/leveraging-cloud-computing-in-construction" ><strong>Leveraging Cloud Computing in Construction</strong></a><br />Just what is cloud computing, why is there such buzz around it, and how can it be used by construction professionals? Cloud computing is a conceptual term used to describe the act of providing information technology (IT) solutions to organizations through the Internet. It allows organizations to implement IT solutions without having to purchase hardware and software and then hiring IT staff to maintain it.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/charles-c-brandt-iii" ><span style="font-size: 12px;">Charles C. Brandt, III</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">&nbsp;&amp;&nbsp;</span><span style="font-size: 12px;">Dan Moyers</span></p><p class="ksm-separator-line">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/construction-real-estate-industry-advisor-issue-2-2013" target=""><em>Construction &amp; Real Estate Industry Advisor</em></a> is a bi-annual newsletter that focuses on the financial side of the construction and real estate industries.</p><p class="ksm-separator-line">&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Fri, 20 Dec 2013 15:01:00 GMTValuation Services Bulletin - Fall 2013http://www.ksmcpa.com/news-blog/valuation-services-bulletin-fall-2013
<p><strong><span style="font-size:18px;">In This Issue:</span></strong></p><p><a href="http://www.ksmcpa.com/the-esop-opportunity-valuation-services-bulletin" ><strong>The ESOP Opportunity</strong></a><br />Business owners can use Employee Stock Ownership Plans (ESOPs) as part of their succession planning strategy. As a tax-advantaged alternative to third party sales, a sale to an ESOP should be considered by a business owner assessing their succession planning options.&nbsp;<br /><span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/andrew-j-manchir" target=""><span style="font-size: 12px;">Andrew J. Manchir</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, ASA, CMA</span></p><p><a href="http://www.ksmcpa.com/court-affirms-no-portion-of-value-is-attributable-to-personal-goodwill" ><strong>Court Affirms No Portion of Value Is Attributable to Personal Goodwill</strong></a><br />The husband was an anesthesiologist in a large practice with 68 partners. The total number of partners had remained fairly stable, with every partner holding an equal ownership interest. However, under an operating agreement, they received unequal distributions based on a formula (which the opinion does not provide).</p><p><a href="http://www.ksmcpa.com/25-percent-rule-does-not-irretrievably-damage-royalty-analysis" ><strong>25 Percent Rule Does Not &lsquo;Irretrievably Damage&rsquo; Royalty Analysis</strong></a><br />The plaintiff developed technology for reducing acoustic feedback in a digital hearing aid. In 2005, it sued the defendants for infringing two of its patents. At trial before the federal district court in 2007, the plaintiff&rsquo;s expert calculated reasonable royalty damages using at least two different approaches.</p><p><a href="http://www.ksmcpa.com/bogdanski-compares-recent-baffling-flp-rulings" ><strong>Bogdanski Compares Recent &lsquo;Baffling&rsquo; FLP Rulings</strong></a><br />Professor John Bogdanski (Lewis &amp; Clark Law School) was interviewed about recent developments in federal tax valuation.</p><p class="ksm-separator-line">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/valuation-services-bulletin-fall-2013" ><em>Valuation Services Bulletin</em></a>&nbsp;is a quarterly newsletter that focuses on&nbsp;<span style="font-size: 14px; line-height: 19px;">the latest developments affecting business litigation, marital dissolution and estate and gift tax.</span></p><p class="ksm-separator-line">&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Thu, 19 Dec 2013 20:50:00 GMTProfitable Solutions for Nonprofits - Fall 2013http://www.ksmcpa.com/news-blog/profitable-solutions-for-nonprofits-fall-2013
<p><strong><span style="font-size:18px;">In This Issue:</span></strong></p><p><strong><a href="http://www.ksmcpa.com/how-to-choose-the-right-investment-manager" >How to Choose the Right Investment Manager</a></strong><br />Finding the right investment advisor or manager for an organization starts with identifying a pool of qualified candidates with proven track records and requesting detailed proposals on how they would manage the investments. Experience working with nonprofit endowments is the key. <span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/scott-a-schuster" style="font-size: 12px;" >Scott A. Schuster</a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/what-to-expect-when-the-irs-comes-knocking" ><strong>What to Expect When the IRS Comes Knocking</strong></a><br />Understanding the details of Internal Revenue Service (IRS) reviews can help reduce an organization&rsquo;s risk of running into trouble.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By </span><a href="http://www.ksmcpa.com/casse-l-tate" ><span style="font-size: 12px;">Casse L. Tate</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA, MS</span></p><p><a href="http://www.ksmcpa.com/board-meetings-time-to-go-virtual" ><strong>Board Meetings: Time to Go Virtual?</strong></a><br />Regularly scheduled board meetings are necessary, but not every meeting has to be conducted in person. Periodic virtual board meetings &ndash; ranging from conference calls to videoconferencing &ndash; can offer significant benefits for both organizations and their board members.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/peter-a-buck" style="font-size: 12px;" >Peter A. Buck</a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/newsbits-profitable-solutions-for-nonprofits-fall-2013" ><span style="font-weight: 700;">Ne</span></a><span style="font-weight: 700;"><a href="http://www.ksmcpa.com/newsbits-profitable-solutions-for-nonprofits-fall-2013" >wsbits</a></span><br />A report from the Aspen Institute encourages Congress to require the IRS to make Form 990 data &ldquo;open&rdquo; &ndash; available to all free of charge in a standard format, published without proprietary conditions and available online as a bulk download. To do so, Congress would need to require nonprofits to file their forms electronically.</p><p class="ksm-separator-line">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s&nbsp;<a href="http://www.ksmcpa.com/profitable-solutions-for-nonprofits-fall-2013" target=""><em>Profitable Solutions for Nonprofits</em></a>&nbsp;is a quarterly newsletter that focuses on tax and accounting issues for the not-for-profit industry.</p><p class="ksm-separator-line">&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Thu, 19 Dec 2013 16:45:00 GMTLitigation Services Bulletin - Fall 2013http://www.ksmcpa.com/news-blog/litigation-services-bulletin-fall-2013
<p><strong><span style="font-size:18px;">In This Issue:</span></strong></p><p><strong><a href="http://www.ksmcpa.com/reasonable-certainty-the-lens-through-which-lost-profits-damages-are-viewed" >Reasonable Certainty: The Lens Through Which Lost Profits Damages Are Viewed</a></strong><br />In order to recover economic damages, the plaintiff must prove the damages actually occurred. However, in cases involving lost profits, the plaintiff is often faced with a different challenge &mdash; proving something that never actually happened would have otherwise occurred.<br /><span style="color: rgb(154, 153, 153); font-size: 12px;">By </span><a href="http://www.ksmcpa.com/jay-r-cunningham" target=""><span style="font-size: 12px;">Jay R. Cunningham</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/court-seeks-fit-between-lost-business-value-calculation-and-facts" ><strong>Court Seeks &lsquo;Fit&rsquo; Between Lost Business Value Calculation and Facts</strong></a><br />In a suit (D.C. Colo.) involving dueling dance club owners and their businesses, the defendants filed a <em>Daubert</em> motion to exclude expert testimony regarding lost profits and lost enterprise value.<br /><br /><a href="http://www.ksmcpa.com/attempt-to-base-lost-profits-on-infringer-s-sales-alone-fails" ><strong>Attempt to Base Lost Profits on Infringer&rsquo;s Sales Alone Fails</strong></a><br />The plaintiff&rsquo;s expert claimed $115 million in damages from lost sales, but the defendants argued the testimony was inadmissible under <em>Daubert</em> for many reasons, including his reliance on a theory that had no grounding in &ldquo;the real world facts of this case.&rdquo;<br /><br /><a href="http://www.ksmcpa.com/does-use-of-full-product-line-data-invalidate-damages-formulation" ><strong>Does Use of Full Product Line Data Invalidate Damages Formulation?</strong></a><br />In a trade dress infringement suit, the defendants challenged the qualifications of the plaintiff&rsquo;s damages expert and the completeness and methodology of his lost profits determination.<br /><br /><a href="http://www.ksmcpa.com/book-value-accurately-reflects-fair-market-value-of-departing-partner-s-interest" ><strong>Book Value Accurately Reflects Fair Market Value of Departing Partner&rsquo;s Interest</strong></a><br />A withdrawing member of a limited liability company unsuccessfully appealed the trial court&rsquo;s decision to use the book value of the company&rsquo;s assets, rather than rely on his expert&rsquo;s going concern analysis, to capture the fair market value (FMV) of his share.</p><p class="ksm-separator-line">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/litigation-services-bulletin-fall-2013" target=""><em>Litigation Services Bulletin</em></a>&nbsp;is a quarterly newsletter that focuses on&nbsp;<span style="font-size: 14px; line-height: 19px;">the latest developments in litigation services and financial damages expert consulting</span>.</p><p class="ksm-separator-line">&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 18 Dec 2013 15:08:00 GMTYear-End Trust Distribution Planninghttp://www.ksmcpa.com/news-blog/year-end-trust-distribution-planning
<p>Starting in 2013, trusts, like individuals, are subject to the higher tax rates on qualified dividends and long-term capital gains (i.e., 20% instead of 15%), as well as the <a href="http://www.ksmcpa.com/news-blog/final-regulations-for-the-unearned-income-medicare-tax" target="" title="Medicare surtax">Medicare surtax</a> (3.8%). However, unlike individuals, trusts are subject to these rates at a much lower income level:</p><ul><li>Trusts: $11,950 for both the 20% and 3.8% rates</li><li>Individuals: 400,000 for single filers or $450,000 for joint filers (20% rate), and $200,000 for single filers or $250,000 for joint filers (3.8% rate)</li></ul><p>Further, trusts hit the top rate of 39.6% for ordinary income in excess of $11,950; for individuals, it is $400,000 for single filers or $450,000 for joint filers.</p><p>In general, if a trust makes a distribution to a beneficiary, then the beneficiary, not the trust, is taxed on the income. Therefore, it might be desirable for trusts to make distributions to beneficiaries so that the trust income will be taxed to the beneficiaries at their rates instead of the potentially higher trust tax rates. However, it is important to consider whether the trust is authorized to make distributions and whether it is wise to make distributions from a non-tax perspective. For purposes of carrying out 2013 trust income to beneficiaries so that the income can be taxed to beneficiaries at their rates instead of trust rates, trusts have until 65 days after year-end (March 6, 2014) to make a distribution and treat it as a distribution for 2013.</p><p>As an example, if a trust has long-term capital gain of $50,000 taxed at the trust&#39;s 23.8% rate instead of the individual&#39;s 15% rate, then the tax savings of passing the long-term capital gain out to the beneficiary is $4,400 (8.8% x $50,000).</p><p>In determining whether trusts should make distributions, keep in mind that if a trust is required to make a distribution (for example, trust accounting income), the distribution is deemed made as of 12/31, even if it is not actually made. However, if the goal is to pass out additional income such as capital gains, the accounting income and capital gains must all be distributed by March 6, 2014.</p><p>If you have additional questions, please contact your KSM advisor.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 18 Dec 2013 14:21:00 GMTThe Advisor - Issue 2, 2013http://www.ksmcpa.com/news-blog/the-advisor-issue-2-2013
<p><strong><span style="font-size:18px;">In This Issue:</span></strong></p><p><a href="http://www.ksmcpa.com/affordable-care-act-tax-implications-of-grouping-activities" target=""><strong>Affordable Care Act Tax Implications of Grouping Activities</strong></a><br />With the implementation of the Patient Protection and Affordable Care Act of 2010, also known as the Affordable Care Act (the ACA), there are several new tax provisions that went into effect as of Jan. 1, 2013. Two of the new tax provisions are the High Income Medicare Tax and the Unearned Income Medicare Tax. <span style="color: rgb(154, 153, 153); font-size: 12px;">By </span><a href="http://www.ksmcpa.com/doug-n-rubenstein" ><span style="font-size: 12px;">Douglas N. Rubenstein</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/the-individual-mandate-and-the-health-insurance-marketplace" target=""><strong>The Individual Mandate and the Health Insurance Marketplace</strong></a><br />Healthcare coverage is set to start on Jan. 1, 2014 for those who would have signed up by Dec. 14, 2013. On the same day the coverage is set to start, so does the Individual Mandate. Due to issues within the marketplace rollout, the time to enroll in a health plan has been extended to March 31, 2014, giving individuals a three-month grace period from the Individual Mandate.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><span style="font-size: 12px;">Amber Moore</span><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/tax-reform-what-does-it-mean" target=""><strong>Tax Reform: What Does It Mean?</strong></a><br />Amid all of the political back-and-forth in Washington that included budget debates and a government shutdown, one topic that continually bubbles to the surface during these conversations is the need for comprehensive tax reform. A major overhaul of the Code has not happened since 1986 and there have been thousands of additions and changes since that time.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><span style="font-size: 12px;">Aimee Reavling</span><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/proposed-changes-for-private-company-accounting-standards-continue-to-progress" target=""><span style="font-weight: 700;">Proposed Changes for Private Company Accounting Standards Continue to Progress</span></a><br />There has been an ongoing debate for years on public versus private company accounting standards (often referred to as big-GAAP versus little-GAAP). As a result of this debate, in 2012 the Financial Accounting Foundation&rsquo;s Board of Trustees approved the establishment of the Private Company Council&nbsp;(PCC). The PCC was established to improve the process of setting accounting standards for private companies.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By </span><a href="http://www.ksmcpa.com/ron-l-smith" ><span style="font-size: 12px;">Ron L. Smith</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/pass-through-entity-owner-compliance-considerations" target=""><strong>Pass-through Entity Owner Compliance Considerations</strong></a><br />Tax season is right around the corner, and that means multistate pass-through entities have decisions to make when it comes to filing and paying taxes for their nonresident owners. Many states require pass-through entities to file withholding and/or composite returns on behalf of their nonresident owners.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By </span><a href="http://www.ksmcpa.com/donna-l-niesen" ><span style="font-size: 12px;">Donna L. Niesen</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><strong><a href="http://www.ksmcpa.com/survey-sees-hoosier-manufacturers-investing-in-growth-despite-workforce-regulatory-concerns" target="">Survey Sees Hoosier Manufacturers Investing in Growth, Despite Workforce, Regulatory Concerns</a></strong><br />The results from Katz, Sapper &amp; Miller&#39;s <em>2013 Indiana Manufacturing Survey: Manufacturing&#39;s Renaissance</em>, reveal an often unnoticed but growing renaissance is underway in Hoosier (and American) manufacturing.</p><p><a href="http://www.ksmcpa.com/hospital-and-health-system-survival-strategy" target=""><strong>Hospital and Health System Survival Strategy</strong></a><br />Change has dominated the healthcare arena over the last few years and there is no evidence of a slowdown or calming period in the near future. In attempts to avoid panic with newly released requirement deadlines from the Center for Medicare &amp; Medicaid Services, hospitals and health systems across the country are searching for ideas, strategies and guidance for how to remain relevant, earn a dollar and prosper in the new era of the Affordable Care Act.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/michael-a-gizzi" ><span style="font-size: 12px;">Michael A. Gizzi</span></a></p><p class="ksm-separator-line">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/the-advisor-issue-2-2013" target=""><em>The Advisor</em></a> is a bi-annual newsletter that focuses on business and tax solutions for today&#39;s entrepreneur.</p><p class="ksm-separator-line">&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Tue, 17 Dec 2013 22:16:00 GMTFinal Regulations for the Unearned Income Medicare Taxhttp://www.ksmcpa.com/news-blog/final-regulations-for-the-unearned-income-medicare-tax
<p>On Nov. 26, 2013, the Internal Revenue Service (IRS) issued final regulations related to the Unearned Income Medicare Tax*, also known as 3.8 percent Medicare tax. Additionally, the IRS revoked the initial proposed regulations related to the net investment income calculation from the sale of S corporation stock or a partnership interest, and issued a new proposed regulation effective Dec. 2, 2013. The following is a brief summary of the key highlights of the proposed and final regulations, which are much more favorable for taxpayers than the previous rules.</p><p><strong><u>Sale of S Corporation Stock or Partnership Interest</u></strong></p><p>In December 2012, the IRS initially issued Proposed Regulation 1.1411.7 with regards to the sale of an individual&rsquo;s share of S corporation stock or partnership interest. Under the proposed regulation, the taxpayer was required to go through a five-step process to determine the share of the gain that would be subject to the 3.8 percent Medicare tax. Due to the complexity of the calculation, the IRS revoked the regulation and issued a new proposed regulation that is to simplify the calculation of the gain subject 3.8 percent Medicare tax.</p><p>The new proposed regulation now utilizes a two-step process to determine the taxpayer&rsquo;s share of gain that would be subject to the 3.8 percent Medicare tax. Step one is to determine the taxpayer&rsquo;s share of the gain from a deemed asset sale of the company. The second step is to determine the gain from the portion of the assets that would be considered investment income. The amount of the gain subject to the 3.8 percent Medicare tax is the lessor of the seller&rsquo;s overall gain from the sale of its membership interest &ldquo;or&rdquo; the seller&rsquo;s share of the gain on assets that would be considered net investment income.</p><p><strong><u>Real Estate Professionals</u></strong></p><p>In general, if a taxpayer qualified as a real estate professional, then income from rental real estate activities would be considered non-passive income instead of passive income for income tax purposes. However, under the proposed regulations issued in December 2012, the rental real estate activities would be subject to the 3.8 Medicare tax if the activity was not considered a trade or business. At that time the IRS did not provide a bright line test for when an activity qualifies as a trade or business. Therefore, it was possible for a real estate professional to have some rental real estate income activities subjected to the 3.8 percent Medicare tax.</p><p>With the issuance of the final regulations, the IRS issued a safe harbor test that provides if a real estate professional participates in a rental real estate activity for more than 500 hours in the current year or in five of the previous 10 years, then the rental income associated with the activity will be presumed to be derived in the ordinary course of a trade or business. Additionally, if the real estate professional has elected to group their rental real estate activities as one activity under Treasury Regulation Section 1.469-9, then the 500-hour test will apply to the group instead of each individual activity.</p><p><strong><u>Self-Rental Rules and Self-Charged Interest</u></strong></p><p>In general rental real estate activities are considered passive with few exceptions. One of the exceptions relates to the self-rental rule. Treasury Regulation 1.469.2(f)(6) provides that if an individual rents property to an activity in which the individual is a material participant, any net rental income generated from the property is recharacterized as non-passive income. The purpose of this rule was to avoid the taxpayer from manipulating the income from the rental activity and offsetting it against passive losses.</p><p>With the issuance of the proposed regulation in December 2012, the IRS did not directly address the self-rental rule issue. The preamble to the proposed regulations stated that in order for a rental real estate activity not to be excluded from net investment income, it needs to be considered a trade or business activity. Additionally, the preamble stated that an allowable grouping of the rental real estate activity with the operating activity would not convert the rental real estate activity into a trade a business activity.</p><p>The final regulations issued by the IRS now provide that rental real estate activities subject to the recharacterization rules will be considered non-passive and therefore, not subject to the 3.8 percent Medicare tax. Also, if the rental real estate activity is grouped with an operating activity that qualifies as a trade or business, then the real estate activity will rise to the level of a trade or business activity and therefore, will not be subject to the 3.8 percent Medicare tax.</p><p>The regulations also addressed the issue of self-charged interest income treated as investment income. Self-charged interest occurs when an individual makes a loan to a pass-through entity which conducts a trade or business and the individual is a material participant in the entity. Under the proposed regulations, the interest income the individual received from the pass-through entity was considered net investment income and subject to the 3.8 percent Medicare tax. Under the final regulations, the individual is now allowed to offset the self-charged interest income against their share of the entity&rsquo;s trade or business interest expense related to the loan from the individual. Any excess interest income will be considered investment income and subject to the 3.8 percent Medicare tax rules.</p><p><strong><u>Grouping Rules</u></strong></p><p>Treasury Regulation 1.469-4 allows for the taxpayer to treat two or more business activities or rental activities as a single activity if the activities constitute an appropriate economic unit (&ldquo;AEU&rdquo;). The grouping of activities as a single activity is based upon a facts and circumstances test. The grouping rules are important as it allows for the material participation rules to be applied to the group instead of each individual activity. There are certain limitations to the grouping rules and one limitation is a rental activity generally cannot be grouped with a trade or business activity.</p><p>With the issuance of the proposed regulations in December 2012, the IRS determined that taxpayers who meet the applicable income thresholds for the Unearned Income Medicare tax should have the opportunity to regroup their activities in the first taxable year beginning after Dec. 31, 2013. The final regulations still allow for the opportunity for eligible taxpayers to reconsider their groupings, but it may only occur during the first tax year beginning after Dec. 31, 2012. For calendar year taxpayers, it would be effective for the Dec. 31, 2013, tax year.</p><p>The final regulations also allow for a taxpayer to regroup their activities on an amended return &ndash; only if the taxpayer was not previously subjected to the Unearned Income Medicare Tax &ndash; but will now be subject to the tax as a result of the amended tax return. This is a one-time opportunity to regroup activities. Once the regrouping is complete, it would apply in all subsequent years.</p><p><strong><u>Treatment of Losses to Offset Gains</u></strong></p><p>Under the proposed regulations issued last December, losses from dispositions of property could only offset property dispositions gains. Losses in excess of gains could not be utilized to offset other investment income. The final regulations provide that in some limited cases excess losses may be available to offset other investment income.</p><p>With the issuance of these final regulations, planning opportunities should be taken advantage of prior to year-end. For more information, please contact your advisor.</p><p><em>*The Unearned Income Medicare Income Tax is applicable to taxpayers with investment income and their modified adjusted gross income is in excess of the following threshold amounts:</em></p><ul><li><em>Married Filing Joint or Surviving Spouses - $250,000</em></li><li><em>Single and Head of Household - $200,000</em></li><li><em>Married Filing Separate - $125,000</em></li></ul>jcody@ksmcpa.com (Jenina Cody)Thu, 05 Dec 2013 20:18:00 GMTIRS Announces Retirement Plan Limitations for 2014http://www.ksmcpa.com/news-blog/irs-announces-retirement-plan-limitations-for-2014
<p>The Internal Revenue Service (IRS) has announced the Cost-of-Living Adjustments (COLA) affecting dollar limitations for retirement plans and other retirement related items for the 2014 tax year. While some of the limitations will remain unchanged, some have increased for 2014 as follows:</p><table border="0" cellpadding="0" cellspacing="0" width="100%"><tbody><tr><td>&nbsp;</td><td style="text-align: center;"><strong><u><span>2014</span></u></strong></td><td style="width: 15px; text-align: center;">&nbsp;</td><td><p align="center"><span style="font-weight: 700;"><u>2013</u></span></p></td></tr><tr><td style="background-color: rgb(232, 232, 232);"><p><strong><span>Social Security Taxable Wage Base</span></strong></p></td><td style="background-color: rgb(232, 232, 232);">$117,000</td><td style="background-color: rgb(232, 232, 232);">&nbsp;</td><td style="background-color: rgb(232, 232, 232);"><p>$113,700</p></td></tr><tr><td><p><strong><span>Medicare Taxable Wage Base</span></strong></p></td><td><p><span>No Limit</span></p></td><td>&nbsp;</td><td><p><span>No Limit</span></p></td></tr><tr><td style="background-color: rgb(232, 232, 232);"><p><strong><span>Compensation (Plan Limit)</span></strong></p></td><td style="background-color: rgb(232, 232, 232);"><span>$260,000</span></td><td style="background-color: rgb(232, 232, 232);">&nbsp;</td><td style="background-color: rgb(232, 232, 232);"><p><span>$255,000</span></p></td></tr><tr><td><p><strong><span>Compensation (SEP)</span></strong></p></td><td><span>$550</span></td><td>&nbsp;</td><td><p><span>$550</span></p></td></tr><tr><td style="background-color: rgb(232, 232, 232);"><p><strong><span>Defined Benefit Limit (415)</span></strong></p></td><td style="background-color: rgb(232, 232, 232);"><p><span>$210,000</span></p></td><td style="background-color: rgb(232, 232, 232);">&nbsp;</td><td style="background-color: rgb(232, 232, 232);"><p><span>$205,000</span></p></td></tr><tr><td><p><strong><span>Defined Contribution Limit (415)</span></strong></p></td><td>$52,000</td><td>&nbsp;</td><td><p><span>$51,000</span></p></td></tr><tr><td style="background-color: rgb(232, 232, 232);"><p><strong><span>401(k) and 403(b) Contribution Limit</span></strong></p></td><td style="background-color: rgb(232, 232, 232);">$17,500</td><td style="background-color: rgb(232, 232, 232);">&nbsp;</td><td style="background-color: rgb(232, 232, 232);"><p><span>$17,500</span></p></td></tr><tr><td><p><strong><span>401(k) and 403(b) Catch Up Contribution Limit (over age 50)</span></strong></p></td><td>$5,500</td><td>&nbsp;</td><td><p><span>$5,500</span></p></td></tr><tr><td style="background-color: rgb(232, 232, 232);"><p><strong><span>SIMPLE Contribution Limit</span></strong></p></td><td style="background-color: rgb(232, 232, 232);">$12,000</td><td style="background-color: rgb(232, 232, 232);">&nbsp;</td><td style="background-color: rgb(232, 232, 232);"><p><span>$12,000</span></p></td></tr><tr><td><p><strong><span>SIMPLE Catch up Contribution Limit (over age 50)</span></strong></p></td><td>$2,500</td><td>&nbsp;</td><td><p><span>$2,500</span></p></td></tr><tr><td style="background-color: rgb(232, 232, 232);"><p><strong><span>Highly Compensated Employee Definition (prior year)</span></strong></p></td><td style="background-color: rgb(232, 232, 232);">$115,000</td><td style="background-color: rgb(232, 232, 232);">&nbsp;</td><td style="background-color: rgb(232, 232, 232);"><p><span>$115,000</span></p></td></tr><tr><td><p><strong><span>Maximum Deduction (% of Compensation) P/S and SEP Plans</span></strong></p></td><td>25%</td><td>&nbsp;</td><td><p><span>25%</span></p></td></tr><tr><td style="background-color: rgb(232, 232, 232);"><p><strong><span>IRA Contribution Limit (Traditional &amp; Roth)</span></strong><span> </span></p></td><td style="background-color: rgb(232, 232, 232);">$5,500</td><td style="background-color: rgb(232, 232, 232);">&nbsp;</td><td style="background-color: rgb(232, 232, 232);"><p><span>$5,500</span></p></td></tr><tr><td><p><strong><span>IRA Catch Up Contribution Limit (Over Age 50)</span></strong></p></td><td>$1,000</td><td>&nbsp;</td><td><p><span>$1,000</span></p></td></tr></tbody></table><div align="center"><hr align="center" noshade="noshade" size="1" width="100%" /></div><p style="text-align: center;"><span style="color: rgb(0, 51, 89);"><span style="font-size: 18px;"><strong>Year-End Compliance Reminders</strong></span></span></p><p><strong>Required Annual Notices</strong></p><p>Many defined contribution plans with certain features are required to provide annual notices to plan participants. Generally, these annual notices are in addition to any initial notices the plan administrator may be required to provide on or before an employee&rsquo;s eligibility date for the plan feature. Plan administrators should ensure that the following annual notices, if applicable, are provided to plan participants on a timely basis.</p><ul><li><strong>401(k) Safe Harbor Notice:&nbsp;</strong>All eligible participants in a safe harbor 401(k) plan must receive an annual notice that describes the safe harbor contribution allocation formula and certain other plan features. The notice must be given by December 1 for a calendar year plan, and not fewer than 30 days or more than 90 days before the first day of the plan year for a non-calendar year plan.<br />&nbsp;</li><li><strong>401(k) Automatic Enrollment Notice:&nbsp;</strong>If the plan provides that employees will be automatically enrolled, the plan administrator must give eligible employees an annual notice that describes the circumstances in which eligible employees are automatically enrolled and pay will be automatically contributed to the plan. The notice must be given by December 1 for a calendar year plan and not fewer than 30 days before the first day of the plan year for a non-calendar year plan. Depending on the plan&rsquo;s auto-enrollment features, the notice may be referred to as a QACA (Qualified Automatic Contribution Arrangement), an EACA (Eligible Automatic Contribution Arrangement) or an ACA (Automatic Contribution Arrangement) notice.<br />&nbsp;</li><li><strong>Qualified Default Investment Alternative (QDIA) Notice:&nbsp;</strong>A plan that permits participants to direct the investment of their account balances may provide that if the participant does not provide an affirmative investment direction election, the portion of the account balance for which an affirmative election was not given will be invested in a qualified default investment alternative. Plan administrators must give the annual notice by December 1 for a calendar year plan and at least 30 days prior to the beginning of the plan year for a non-calendar year plan.</li></ul><p>It should be noted that a safe harbor 401(k) plan may incorporate two or more of the above notices into a single notice.</p><p><strong>Plan Forfeitures</strong></p><p>Many defined contribution plans require participants to complete a period of service before becoming fully vested in employer matching or non-elective (profit sharing) contributions. If a participant terminates prior to completing the service requirement for full vesting, the non-vested account may be forfeited and placed into a plan forfeiture suspense account. Some plan administrators allow the plan&rsquo;s forfeiture suspense account to accumulate over several years.&nbsp; The Internal Revenue Code does not allow this practice.&nbsp;</p><p>The plan&rsquo;s document or adoption agreement should contain provisions detailing how and when to utilize the plan&rsquo;s forfeiture suspense account and may provide several options on the use of the forfeitures. A plan&rsquo;s failure to utilize forfeitures in a timely manner denies plan participants additional benefits or reduced plan expenses. Generally, a plan administrator will have the following options related to the plan&rsquo;s forfeiture suspense account under the terms of the plan document:</p><ul><li>Forfeitures may be used for eligible plan expenses (including administration, recordkeeping and audit fees)</li></ul><ul><li>Forfeitures may be added to any employer matching or non-elective (profit sharing) contributions and allocated to eligible participants in the same manner</li></ul><ul><li>Forfeitures may be used to reduce any employer matching or non-elective (profit sharing) contributions</li></ul><p><em><span style="font-style: normal; font-weight: 700;">Fidelity Bond</span></em></p><p>The Employee Retirement Income Security Act of 1974 (ERISA) requires all persons who handle assets of employee benefit plans to be bonded through an ERISA fidelity bond. This requirement protects plans against losses sustained due to acts of fraud or dishonesty by those persons whose positions require them to come in direct contact with or exercise discretion over plan assets.&nbsp;</p><p>At the beginning of each plan year, the plan administrator or other fiduciary must assure that the bond continues to satisfy the ERISA requirements. The fiduciary should make appropriate adjustments or add additional protection to make sure the bond is in compliance for the new plan year. The bond must provide coverage for persons handling plan funds in an amount no less than 10% of the amount of funds handled in the previous year. The minimum bond amount cannot be less than $1,000 and does not need to be more than $500,000 per plan (or $1 million for plans that hold employer securities). The bond does not need to state a specific dollar amount, but instead can provide that at least 10% of funds handled, per plan are covered. The fiduciary could purchase an inflation guard provision that automatically increases the amount of coverage under the bond to equal the amount required under ERISA, if not already in place.</p><div style="margin: 10px 0px 6px; border-top-color: rgb(204, 204, 204); border-top-width: 1px; border-top-style: solid;">&nbsp;</div><div><span>For&nbsp;questions regarding your&nbsp;retirement plan, please contact any of the members of our <a href="http://www.ksmcpa.com/employee-benefit-plans" target="">Employee Benefit Plan Services Group</a>.</span></div>cdjonlich@ksmcpa.com (Chris Djonlich)Fri, 22 Nov 2013 16:57:00 GMTThe Final “Repair and Maintenance” Regulations – Explaining the Impact on Business (Part II)http://www.ksmcpa.com/news-blog/the-final-repair-and-maintenance-regulations-explaining-the-impact-on-business-part-ii
<p><em>Summary &ndash; The following is Part II of a multi-part series discussing the impact of new regulations governing when taxpayers deduct or capitalize expenditures related to tangible property. (<a href="http://www.ksmcpa.com/news-blog/the-final-repair-and-maintenance-regulations-explaining-the-impact-on-business-part-i" target="">View Part I</a>.) With the effective date of Jan. 1, 2014, quickly approaching, taxpayers should give immediate attention to these new rules, as commentators agree that nearly all taxpayers will be affected. The new rules may require significant changes to a taxpayer&rsquo;s practices with respect to the capitalization or deduction of certain expenditures.</em></p><p>On Sept. 13, 2013, the Internal Revenue Service (IRS) released final rules concerning when taxpayers must capitalize and when they may deduct an expenditure related to acquiring, producing, maintaining or repairing tangible property. The final rules replace and remove previously issued temporary regulations under Internal Revenue Code (Code) Sec. 263(a) and 162(a). These new regulations&nbsp;<span style="font-weight: 700;">must</span>&nbsp;be followed by all taxpayers for tax years beginning Jan. 1, 2014. At a taxpayer&rsquo;s choosing, these rules&nbsp;<span style="font-weight: 700;">may</span>&nbsp;be followed by taxpayers for tax years beginning Jan. 1, 2012.&nbsp;</p><p>Code Sec. 263(a) requires the capitalization of amounts paid to acquire, produce or improve tangible property. A taxpayer generally recovers capital costs over time through depreciation or amortization deductions, or at the time of disposition, an inherently slower rate of recovery of any expenditure.&nbsp; Alternatively, Code Sec. 162(a) allows the deduction of ordinary and necessary business expenses incurred during the taxable year, including the cost of supplies, repairs and maintenance.&nbsp;</p><p>The new regulations attempt to provide guidance for distinguishing between deductible supplies, repairs, and maintenance, and capital expenditures. The new rules also discuss the disposition of depreciable property under Code Sec. 167 and 168. The final regulations cover five major topics:</p><ul><li>Capital expenditures (Reg. 1.263(a)-1)</li><li>Amounts paid for acquisition or production of tangible property (Reg. 1.263(a)-2)</li><li>Amounts paid for improvements to tangible property (Reg. 1.263(a)-3)</li><li>Repairs and maintenance (Reg. 1.162-4)</li><li>Materials and supplies (Reg 1.162-3)</li></ul><p>Part II of this series discusses final rules related to amounts paid to acquire, produce, improve, repair or maintain tangible property.</p><p><strong><u>Amounts Paid to Acquire or Produce Tangible Property</u></strong></p><p>Under final regulations, &sect;1.263(a)-2 requires that, except as allowed by rules relating to materials and supplies (Reg. 1.162-3) and de minimis expenditures (Reg. 1.2639(a)-1(f)), all amounts paid to acquire or produce tangible real or personal property must be capitalized. As compared to Reg. 1.263(a)-3, which primarily addresses expenditures made with respect to tangible property previously acquired by taxpayers, Reg. 1.263(a)-2 primarily addresses expenditures incurred to obtain or create an item of property not previously owned.</p><p>For purposes of analyzing expenditures under the final regulations, and for purposes of identifying the type of property to which an expenditure applies, the final 263(a) regulations refer to regulations under Code Section 48. &ldquo;Tangible personal property&rdquo; means any tangible property except land and improvements thereto, such as buildings or other inherently permanent structures (including structural components of such buildings or structures). Tangible personal property includes all property (other than structural components) which is contained in or attached to a building.</p><p>Real property is defined as land and improvements to land, including buildings and other inherently permanent structures. The term &ldquo;building&rdquo; generally means any structure enclosing a space within its walls, and usually covered by a roof, the purpose of which is, for example, to provide shelter or housing, or to provide working, office, parking, display or sales space. For purposes of Reg. 1.263(a)-2, real property also includes other tangible property as defined by Reg. 1.48-1(d). The act of producing real or personal property is defined broadly and includes the acts of constructing, building, installing, manufacturing, developing, creating, raising or growing tangible property.</p><p>The final regulations capture and require the capitalization of both direct and indirect expenditures that result in the production or acquisition of property. In general, the amount paid to acquire or produce a unit of property (UOP) includes the invoice price (the cost of the item of property itself), transaction costs (referred to as &ldquo;inherently facilitative costs&rdquo; in the final rules), and amounts paid for work incurred prior to the date the subject property is placed in service. In an effort to minimize controversy with taxpayers regarding costs it considers to be facilitative, the IRS provides Reg. 1.263(a)-2(f). This section contains an extensive list of inherently facilitative costs that must be capitalized, including:</p><ul><li>Transportation costs;</li><li>Appraisals or valuations;</li><li>Costs of negotiation;</li><li>Certain contingent fees (e.g., contingent broker commissions);</li><li>Application fees and permits;</li><li>Transfer taxes and other conveyance fees;</li><li>Architectural, engineering and similar design fees; and</li><li>Costs related to like kind exchanges</li></ul><p>Taxpayers should be aware that certain indirect expenditures are expressly identified as not subject to capitalization under Reg. 1.263(a)-2:</p><p><strong>Certain investigative and decision-making expenditures. </strong>Amounts paid by taxpayers in the process of investigating or evaluating the acquisition of real property are deductible, if the amount paid relates to activities performed in the process of determining <em>whether</em> to acquire real property and/or <em>which</em> real property to acquire (sometimes called the &ldquo;whether or which rule&rdquo;). This rule applies only to real property; amounts paid to evaluate personal property must be capitalized. It should be noted that expenditures that result in the acquisition of personal property together with real property (for example, the purchase of a building plus furniture contained therein) must be allocated between items of personal and real property, and the amount allocated to personal property must be capitalized into the basis of the subject personal property.</p><p><strong>Amounts paid for employee compensation and overhead. </strong>Amounts related to employee compensation or overhead are not required to be capitalized. Taxpayers may elect to treat expenditures paid for employee compensation or overhead as facilitative costs, and therefore may capitalize those costs. The election is made by capitalizing the subject costs on the taxpayer&rsquo;s timely filed original Federal tax return.</p><p><strong><u>Amounts Paid to Improve, Repair or Maintain Tangible Property</u></strong></p><p><strong>The Unit of Property and Functional Interdependence Concepts</strong></p><p>Few areas of the 263(a) regulations generate as much controversy between taxpayers and the IRS as do the rules under Reg. 1.263(a)-3. The ever-present dilemma for taxpayers is how to determine when an asset has been improved versus when it has merely been maintained or repaired. How does one discern when an asset has increased in value or had its useful life extended? What constitutes an &ldquo;incidental&rdquo; repair? What is &ldquo;maintenance&rdquo;? While taxpayers were hoping for bright line tests to answer these and similar questions, the final regulations still rely on analysis of facts and circumstances to determine how to treat such expenditures. The application of the new regulations to amounts paid will likely remain a source of contention between taxpayers and the IRS, but the final rules provide numerous examples of typical transactions and their treatment to help guide taxpayers. Central to any analysis under Reg. 1.263(a)-3 is understanding the concept of the &ldquo;unit of property&rdquo; and &ldquo;functional interdependence.&rdquo;</p><p>The general rule of Reg. 1.263(a)-3 requires that amounts paid to improve a unit of property must be capitalized. An amount paid is considered an improvement to a UOP if it results in one of the following three outcomes:</p><ul><li>Results in a betterment to the UOP;</li><li>Restores the UOP; or</li><li>Adapts the UOP to a new or different use.</li></ul><p>The regulations generally define units of property by reference to: (1) buildings and structural components, and (2) assets other than buildings and structural components (i.e., everything else). Because the accurate application of the final regulations is dependent upon defining the asset (i.e., the unit of property) with respect to which an expenditure is made, it is important for taxpayers to understand the conceptual framework of functional interdependence and units of property.</p><p>In the case of buildings, the overall UOP is the building itself (as defined in Reg. 1.48-1(e)(1)) plus all structural components (as defined in Reg. 1.48-1(e)(2)). The IRS, in an effort to insure uniform application of the final rules to all types of buildings, further distinguish between elements of the building structure and certain specifically identified functional systems of a building. This further delineation establishes subsets of building components that must be analyzed as separate units of property. Under the new regulations, the units of property associated with buildings are:</p><ul><li>The building structure and structural components, except for those systems defined in items 2 through 9 hereunder</li><li>Heating, ventilation and air conditioning systems (including motors, compressors, boilers, furnaces, chillers, pipes, ducts and radiators)</li><li>Plumbing systems (including pipes, drains, valves, sinks, bathtubs, toilets, water and sanitary sewer collection equipment, and site utility equipment used to distribute water and waste to and from the property line and between buildings and permanent structures)</li><li>Electrical systems (including wiring, outlets, junction boxes, lighting fixtures, and site utility equipment used to distribute electricity from the property line to and between buildings and other permanent structures)</li><li>All escalators</li><li>All elevators</li><li>Fire protection and alarm systems (including sensors, computer controls, sprinkler heads, sprinkler mains, associated piping or plumbing, pumps, visual and audible alarms, alarm controls panels, heat and smoke detectors, fire escapes, fire doors, emergency exit lighting and signage, and fire fighting equipment such as extinguishers and hoses)</li><li>Security systems for protection of the building and its occupants (including window and door locks, security cameras, recorders, monitors, motion detectors, security lighting, alarm systems, entry and access systems, related junction boxes, associated wiring and conduit)</li><li>Gas distribution system (including associated pipes and equipment used to distribute gas to and from the property line and between buildings or permanent structures)</li></ul><p>Taxpayers should understand that this is a significant change from previously issued proposed regulations, given that under prior guidance taxpayers treated the entire building, inclusive of the now separately identified systems, as a single unit of property. For example, under prior guidance expenditures related to heating, ventilation, and air conditioning (HVAC) systems may have been deducted based on the analysis that the UOP, the building, was not improved. Under final 263(a) rules the analysis must look at only the HVAC system as the UOP.</p><p><strong>Rule for lessees. </strong>In the case of lessees of buildings, the unit of property is each building and its structural components where the lessee leases the entire building. Where the lessee leases a portion of a building (e.g., an office, a floor, or certain square footage), the unit of property is that portion of each building, and the structural components associated with that portion of each building, subject to the lease. With regard to the classification of an amount paid as a leasehold improvement, it should be noted that an expenditure related to work previously performed on a leased building (e.g., a change to a prior renovation) is analyzed with respect to its relation to the entire building, not the prior renovation.</p><p>In the case of property other than buildings (typically equipment and processing systems), all of the components that are functionally interdependent comprise a single unit of property. Functionally interdependent components are those where the placing in service of one component is dependent upon the placing in service of one or more other components, where such components together form a complete system. The final regulations discuss three basic classes of property other than buildings:</p><ol><li>&ldquo;Plant property&rdquo;, which means functionally interdependent machinery or equipment (other than network assets) used to perform an industrial process</li><li>&ldquo;Network assets&rdquo;, which means railroad track, oil and gas pipelines, water and sewage pipelines, power transmission and distribution lines, and telephone and cable lines; and</li><li>General purpose systems that are not plant property or network assets.</li></ol><p>The final rules extend the analysis of functional interdependence to distinguish between separate components of plant property that perform discrete or major functions within the functionally interdependent system. Because understanding and defining the unit of property is critical to determining whether an amount is deductible or capital, manufacturers, utility operators and similar taxpayers should give particular attention to understanding the analysis of discrete or major functions in connection with the concept of functional interdependence.</p><p><em>See IRS Examples:&nbsp;<a href="http://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/75b78e05-9607-4240-9a0e-d050e7de13b0/irs-example-building-system.pdf" target="_blank">Building Systems and Plant Property</a></em></p><p>After establishing the unit of property to which an expenditure relates, taxpayers must determine whether the expenditure constitutes:</p><ul><li>A betterment of the unit of property;</li><li>Restoration of the unit of property; or</li><li>An adaptation of the unit of property to a different use.</li></ul><p>If the character of an expenditure is determined to align with any of the aforementioned categories of improvements, that expenditure must be capitalized. Before undertaking an analysis of whether an amount must be capitalized under &sect;1.263(a)-3, taxpayers should take note of the following special rules.</p><p><strong>Repairs and maintenance completed simultaneously with improvements are deductible. </strong>Under previous temporary regulations, the rehabilitation doctrine required that a taxpayer capitalize all costs (including, for example, otherwise deductible repair costs) incurred at the same time as an improvement. For example, if a taxpayer requested a paving contractor to patch potholes in an existing parking lot at the same time as the contractor was paving a new, expanded parking area, the patching work would be required to be capitalized. This treatment was required even though the patching work would otherwise be a deductible repair. Final regulations under 1.263(a) allow qualifying costs to be deducted as repairs or maintenance regardless whether such expenditures are incurred at the same time as an improvement project.</p><p><strong>Removal costs may be deductible. </strong>If a taxpayer disposes of a depreciable asset and takes the adjusted basis of the asset or asset component into consideration for purposes of calculating gain or loss, then the costs to remove the asset or asset component are deductible.</p><p><strong>Safe harbor for small taxpayers. </strong>Under certain circumstances, a small taxpayer may not have to capitalize an amount determined to be an improvement. A small taxpayer is one with: (1) less than $10 million in average gross receipts for the preceding three years; and (2) unadjusted basis in the building to which an expenditure relates of $1 million or less. If an eligible small taxpayer, then the taxpayer may annually deduct the lesser of $10,000 or 2 percent of the unadjusted building basis. In calculating total deductions related to tangible property the taxpayer must include all expenditures for repairs, maintenance, improvements and similar activities. A small taxpayer elects to deduct amounts paid for improvements by attaching a statement to the taxpayer&rsquo;s timely filed original Federal tax return.</p><p><strong>Safe harbor for routine maintenance. </strong>Any amount paid for routine maintenance on a unit of tangible personal property, a building, or a major system of a building, is not considered an improvement to that unit of property. Therefore, the amount paid may be deducted. In the case of buildings, maintenance activities can only be considered routine if the taxpayer reasonably expects to perform the activities more than once during the 10-year period beginning when the subject building structure or system is placed in service. In the case of property other than buildings, maintenance activities can only be considered routine if the taxpayer expects to perform the activities more than once during the class life of the unit of property.</p><p><strong>Optional election to capitalize repair and maintenance costs. </strong>Taxpayers may treat maintenance expenditures differently for purposes of tax reporting versus financial statement reporting. If desired, taxpayers may elect to capitalize amounts otherwise deductible for tax purposes. This election allows taxpayers to align the tax treatment of an expenditure with the treatment for purposes of financial statements. It also relieves the administrative and reporting burden of tracking book-tax differences. The election is made annually by attaching a statement to the taxpayer&rsquo;s timely filed original tax return.</p><p><strong>Betterments</strong></p><p>An expenditure constitutes a betterment of a UOP if the expenditure:</p><ul><li>Ameliorates a material condition or defect that either existed prior to the taxpayer&rsquo;s acquisition of the unit of property or arose during the production of the unit of property, whether or not the taxpayer was aware of the condition or defect at the time of acquisition or production;</li><li>Is for a material addition, including a physical enlargement, expansion, extension, or addition of a major component to the unit of property or a material increase in the capacity, including additional cubic or linear space, of the unit of property; or</li><li>Is reasonably expected to materially increase the productivity, efficiency, strength, quality or output of the unit of property.</li></ul><p>Certain caveats to the requirement to capitalize costs exist under betterment rules, although an expenditure may be required to be capitalized under another provision of Internal Revenue Code. Specifically:</p><p style="margin-left: 40px;"><strong>Changes in technology and replacement parts not a betterment. </strong>If an expenditure is made to replace a part of a unit of property, and a comparable replacement part is not available (e.g. due to technological changes or product enhancements), a betterment does not necessarily occur merely because the replacement part is improved over the part being replaced. Through this rule, a taxpayer is not deemed to have bettered a unit of property merely because a better quality component has succeeded a prior component as the standard replacement part to be used in the unit of property.</p><p style="margin-left: 40px;"><strong>Correcting normal wear, tear and/or damage not a betterment. </strong>In cases where an expenditure is made to relieve the effects of normal wear, tear and/or damage occurring during a taxpayer&rsquo;s use of the unit of property, the determination of whether a betterment has occurred is made by comparing the condition of the property immediately after the expenditure with the condition of the property immediately prior to the time period when the property incurred the normal wear, tear and/or damage. The result of this rule is that returning a unit of property to its condition immediately prior to use by the taxpayer does not, of itself, constitute a betterment.</p><p><em>See IRS Examples:&nbsp;<a href="http://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/5b9a145f-71c6-4f1a-a291-ad7653a7355d/irs-examples-betterments.pdf" target="_blank">Betterments</a></em></p><p><strong>Restorations</strong></p><p>Under the final regulations, taxpayers must capitalize amounts paid to restore a unit of property. An expenditure restores a unit of property if it:</p><ul><li>Is for the replacement of a component of a unit of property for which the taxpayer has properly deducted a loss for that component, other than a casualty loss under Reg. 1.165-7;</li><li>Is for the replacement of a component of a unit of property for which the taxpayer has properly taken into account the adjusted basis of the component in realizing gain or loss resulting from the sale or exchange of the component;</li><li>Is for the restoration of damage to a unit of property for which the taxpayer is required to take a basis adjustment as a result of a casualty loss under Code Section 165, or relating to a casualty event described in Code Section 165;</li><li>Returns the unit of property to its ordinarily efficient operating condition if the property has deteriorated to a state of disrepair and is no longer functional for its intended use;</li><li>Results in the rebuilding of the unit of property to a like-new condition after the end of its class life; and</li><li>Is for the replacement of a part or a combination of parts that comprise a major component or a substantial structural part of a unit of property</li></ul><p>Restorations typically involve events that trigger recognition of a loss, as opposed to activities that generate ordinary deductions. As such, it is likely that the requirement to capitalize expenditures due to application of the restoration rules will be uncommon. Taxpayers should note that, in general, a comprehensive maintenance program, even if substantial, does not typically return a unit of property to like new condition.</p><p><strong>Special rule related to casualty losses. </strong>Previous temporary regulations required the capitalization of the entire expenditure related to restorations of casualty losses. This created unfavorable results for taxpayers owning property with a high fair market value but low adjusted basis, where such property was destroyed by a casualty event. The final regulations limit the amount of restoration expenditures required to be capitalized to the taxpayer&rsquo;s adjusted basis in the damaged property prior to the event. Expenditures in excess of the adjusted basis in the property may be deducted.</p><p><em>See IRS Examples: <a href="http://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/694fc0c8-b4d0-4c20-9cbe-25814fd5f27c/irs-examples-restorations.pdf" target="_blank">Restorations</a></em></p><p><strong>Adaptation to different use</strong></p><p>The rules of 1.263(a)-3(l) govern the capitalization of amounts paid to adapt a unit of property to a new or different use. An amount is deemed paid to adapt a UOP to a different use if the adaptation is inconsistent with the taxpayer&rsquo;s ordinary use of the UOP at the time it was placed in service.</p><p><em>See IRS Examples: <a href="http://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/8d3396dc-1d87-4cd9-a984-d321f9957413/irs-examples-different-use.pdf" target="_blank">Different Use</a></em></p><p>The IRS has provided numerous examples in the final regulations to illustrate the concepts discussed above. Taxpayers are encouraged to review those examples as guidance for determining the treatment of expenditures made in the course of operating their business.</p><p>Please look for more information regarding the final repair and maintenance regulations in upcoming segments from this series. Please contact your KSM advisor with questions about new rules under Reg. 1.263(a).</p>cdjonlich@ksmcpa.com (Chris Djonlich)Tue, 12 Nov 2013 15:57:00 GMTState & Local Tax Update - 10/30/13http://www.ksmcpa.com/news-blog/state-local-tax-update-10-30-13
<p><span style="font-weight: 700;">2013 Trending for Indiana Real Property Taxes</span><br />Indiana counties are currently wrapping up their 2013 trending assessments. During a trending year, county and township assessors are required to review arms-length transaction sales within a given time period and trend values up or down accordingly. Once the values have been updated, ratio studies are required to be submitted to the Department of Local Government Finance (DLGF). The DLGF will review the ratio study and approve or deny it. Once the ratio study has been approved and values have been certified, counties will start releasing notice of assessments.</p><p>Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their tax bill, it is often too late to appeal the assessed value for that year. Some counties have already mailed their notice of assessments, and the 45-day appeal period is well underway.</p><p>We would be happy to review the reassessed value of your commercial property to help you consider whether an appeal should be filed. For assistance, contact your KSM advisor or KSM property tax leader&nbsp;<a href="http://www.ksmcpa.com/chad-m-miller" target="" title="Chad Miller">Chad Miller</a>&nbsp;as soon as you receive your Form-11.&nbsp;</p><div style="margin-top: 10px; margin-bottom: 6px; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(204, 204, 204);">&nbsp;</div><p><strong>Colorado: Direct Marketing Association Injunction to Be Dissolved</strong><br />The United States Court of Appeals for the Tenth Circuit has dismissed the appeal in the case brought by the Direct Marketing Association that barred enforcement of Colorado&#39;s notice and reporting requirements on retailers who do not collect taxes on sales to Colorado purchasers. A federal district court had issued a permanent injunction that barred enforcement of those requirements after concluding that they violated the Commerce Clause. Without reaching the merits of the Commerce Clause claims, the appellate court ordered that the injunction be dissolved and the appeal be dismissed because the federal Tax Injunction Act divested the district court of jurisdiction over those claims. <a href="http://caselaw.findlaw.com/us-10th-circuit/1642460.html" target="_blank" title="Direct Marketing Assn. v. Brohl, et al., U.S. Ct. App., 10th Cir., Dkt. No. 12-1175, 08/20/2013">Direct Marketing Assn. v. Brohl, et al., U.S. Ct. App., 10th Cir., Dkt. No. 12-1175, 08/20/2013</a></p><p><strong>Illinois Court Rules Cook County Use Tax Unconstitutional</strong><br />The Cook County Circuit Court granted summary judgment to the taxpayers prohibiting enforcement of the Non-Titled Personal Property Use Tax (&quot;use tax&quot;) in holding that the Non-Titled Personal Property Use Tax Ordinance (&quot;ordinance&quot;) violates the limitation on home rule powers, is an unconstitutional <em>ad valorem</em> tax, and is <em>per se </em>discriminatory against interstate commerce. Effective April 1, 2013, the Cook County Board enacted the ordinance imposing a use tax on the use within Cook County of non-titled personal property purchased outside of Cook County. The court noted that under ILCS Chapter 55 &sect; 5/5-1009 no home rule county has the authority to impose a use tax. Consequently, the &quot;use tax on the value of personal property is a tax on the selling price or purchase price of the tangible personal property when first subjected to use in the County,&quot; which is prohibited by a home rule county. Additionally, since the ordinance applies the tax to the value of the personal property, the tax violates a specific prohibition by the Illinois Constitution on the power to tax. Finally, the use tax is per se discriminatory against interstate commerce because purchase may be made in a state that does not impose a tax on sales resulting in a tax only in Cook County on out-of-state purchases. The court further noted that the voluntary payment doctrine does not apply because the taxpayers are not seeking a refund of the tax, but rather are seeking a declaratory judgment prohibiting enforcement of the use tax. (Reed Smith LLP, et. al. v. Ali, et. al., Cook County Cir. Ct., Dkt. No. 2013 L 050454, 10/11/2013.)</p><p><strong>Illinois Court Rules Pass-Through Miles Are Included in Sales Factor Numerator</strong><br />The Cook County Circuit Court has reversed the trial court&#39;s summary judgment determination and concluded that the Department of Revenue can tax pass-through miles as revenue miles in Illinois pursuant to ILCS Chapter 35 &sect; 5/304(d)(1). The taxpayer is an interstate trucking company trying to recover funds submitted in protest following an audit where the department took the position that the taxpayer should include miles driven through Illinois without picking up or delivering goods (i.e., pass-through miles) in the numerator of its apportionment factor as revenue miles &quot;in this State.&quot; The circuit court determined the &quot;pass-through miles establish a physical and economic presence in Illinois which must be taxed according to ILCS Chapter 35 &sect; 5/304(d)(1).&quot; The circuit court further defined &quot;in this State&quot; to include having a presence or existence in Illinois and the taxpayer meets this definition since it has property and employees physically present in Illinois and utilizes infrastructure and roadways in Illinois. The court noted the taxpayer also has an economic connection with the state by paying Illinois fuel tax and that revenue miles are not conditional on the taxpayer generating income but rather that the miles be traveled &quot;for a consideration.&quot; Finally, the court pointed out that the statute was amended in 2008 to expressly include pass-through miles in the apportionment factor. (White v. Hamer, et al., Cook County Cir. Ct., Dkt. No. 11 L 50282, 09/30/2013.)</p><p><strong>Kentucky Remote Vendor Use Tax Notice Reminder</strong><br />The Kentucky Department of Revenue has posted a notice on their website reminding remote vendors that, effective July 1, 2013, out-of-state retailers with no legal requirement to collect tax in Kentucky, and who expect more than $100,000 in gross annual sales to Kentucky residents, must notify their Kentucky customers that use tax must be reported and paid directly to the Department of Revenue on applicable purchases in accordance with Ky. Rev. Stat. Ann. &sect; 139.450 . The notice must be readily visible and contain the information set forth as follows: (1) the retailer is not required to and does not collect Kentucky sales or use tax; (2) the purchase may be subject to Kentucky use tax unless the purchase is exempt from taxation in Kentucky; (3) the purchase is not exempt merely because it is made over the Internet, by catalog, or by other remote means; and (4) the Commonwealth of Kentucky requires Kentucky purchasers to report all purchases of tangible personal property or digital property that are not taxed by the retailer and pay use tax on those purchases unless exempt under Kentucky law. The tax may be reported and paid on the Kentucky individual income tax return or by filing a consumer use tax return with the Kentucky Department of Revenue. See <a href="http://www.revenue.ky.gov/hot+topics" target="_blank" title="KY Notice to Remote Vendors">KY Notice to Remote Vendors</a> for more information.</p><p><strong>Ohio Issues Information Release Outlining New Tiered CAT Minimum Fees</strong><br />Effective Jan. 1, 2014, the Ohio annual minimum tax (AMT) for Commercial Activity Tax will be based on a new tiered structure. In general, persons with $150,000 or less in taxable gross receipts are not subject to the CAT. The CAT rate of 0.26% remains unchanged and continues to apply to those taxpayers with taxable gross receipts over $1 million (with the first $1 million in taxable gross receipts excluded from CAT liability). Currently, the AMT is $150. For tax periods beginning on January 1, 2014, and thereafter, the AMT will become a tiered structure, and taxpayers will pay an amount that corresponds with their overall commercial activity. The taxpayer will use its previous calendar year&#39;s taxable gross receipts to determine the current year&#39;s AMT. Taxpayers with $1 million or less in taxable gross receipts will pay $150 AMT (no change). The AMT for taxpayers with total taxable gross receipts of more than $1 million but less than or equal to $2 million will be $800; AMT for taxpayers with taxable gross receipts more than $2 million but less than or equal to $4 million, $2,100; and AMT for taxpayers with taxable gross receipts in excess of $4 million, $2,600. See <a href="http://www.tax.ohio.gov/commercial_activities/information_releases/index_cat/cat_2013_05.aspx" target="_blank" title="Information Release 2013-05">Information Release 2013-05</a> for more information.</p><p><strong>New Jersey Announces 2013 Composite Tax Rate</strong><br />The New Jersey Division of Taxation has announced that for tax years beginning on or after Jan. 1, 2013, all members who elect to participate in a composite return filing will be required to pay tax at the highest rate, in compliance with N.J. Admin. Code &sect; 18:35-5.2. The division had previously permitted members with New Jersey sourced income of less than $250,000 to apply the 6.37% tax rate rather than the highest New Jersey tax rate. The division reminds taxpayers that participation in a composite return is elective. If the nonresident individual does not believe that the benefits derived from the composite return outweigh the additional tax paid, they can file an individual nonresident return (Form NJ-1040NR). As a result of the enforcement of the regulation, some filing entities may receive a notice for failure to make the required estimated payments. If the filing entity believes the correct estimated payments were remitted using the two tiered tax rate calculation, please contact the division at: New Jersey Division of Taxation ITAB - Composite Return P.O. Box 288 Trenton, NJ 08646-0288</p><p><strong>Texas Rules No Franchise Tax Nexus for Out-of-State Online Vendor</strong><br />The Texas Comptroller of Public Accounts has ruled that a Florida LLC that offered nutritional supplements to the general public through an Internet website was not subject to the Texas franchise tax. Franchise tax is imposed on each taxable entity that does business in Texas or that is chartered or organized in Texas. For receipts to be taxable by Texas, the act done or property producing the income must be located in Texas. It is the localization of the transaction in Texas and not the place of physical handing over or receiving of money that is significant. In this case, by simply making assertions in the pleadings, the comptroller failed to meet its burden to establish a prima facie case that the LLC did business in Texas. See <a href="http://cpastar2.cpa.state.tx.us/highlight/index.html?url=http%3A//aixtcp.cpa.state.tx.us/opendocs/open32/201306734h.html&amp;charset=iso-8859-1&amp;la=en&amp;fterm=107%2C715&amp;search=../query.html%3Fqt%3D107%252C715" target="_blank" title="Decision 107,715">Decision 107,715</a> for details.&nbsp;</p><p>For more information, contact&nbsp;<a href="http://www.ksmcpa.com/donna-l-niesen" target="" title="Donna Niesen">Donna Niesen</a>&nbsp;at&nbsp;<a alias="dniesen@ksmcpa.com" conversion="undefined" href="mailto:dniesen@ksmcpa.com" title="dniesen@ksmcpa.com">dniesen@ksmcpa.com</a>.&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 30 Oct 2013 13:16:00 GMTSurvey Sees Hoosier Manufacturers Investing in Growth, Despite Workforce, Regulatory Concernshttp://www.ksmcpa.com/news-blog/survey-sees-hoosier-manufacturers-investing-in-growth-despite-workforce-regulatory-concerns
<p>Indianapolis, Ind.&nbsp;&ndash; The certified public accounting firm of Katz, Sapper &amp; Miller LLP today released the results of their seventh annual Indiana manufacturing survey. This statewide study of employers in Indiana&rsquo;s largest industry was commissioned by Katz, Sapper &amp; Miller and developed in partnership with the IU Kelley School of Business&nbsp;<span style="color: rgb(80, 80, 80); line-height: 19px; font-size: 14px;">&ndash;</span>&nbsp;Indianapolis, Conexus Indiana and the Indiana Manufacturers Association.</p><p>The results from the <em>2013 Indiana Manufacturing Survey: Manufacturing&rsquo;s Renaissance,</em> reveal an often unnoticed but growing renaissance is underway in Hoosier (and American) manufacturing. Nearly 80% of respondents over the last two annual surveys&nbsp; describe their businesses as &lsquo;healthy&rsquo; or &lsquo;stable&rsquo; &ndash; a strong rebound from the dismal days of 2009-2010, when nearly half used the term &lsquo;challenged&rsquo; to characterize their operations.<br />&nbsp;</p><p><a href="http://www.ksmcpa.com/2013-indiana-manufacturing-survey" target=""><img align="" alt="2013 Indiana Manufacturing Survey" height="1826" src="https://az480170.vo.msecnd.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/4f7f5646-73cf-4951-a786-8a3ffc0f74d3/2013-indiana-manufacturing-survey-infographic-590px-.png" style="margin: 0px; border: 0px currentColor; width: 591px; height: 1826px;" title="Access the 2013 Survey" width="591" /></a></p><script>$( document ).ready(function() {
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</textarea><br />&nbsp;</div></div><p>Other key findings reveal:</p><ul><li>More than 70% of Hoosier manufacturers are actively investing in capital and labor again, while less than 5% are continuing to cut costs across the board. These results suggest that even in today&#39;s still turbulent economic times, companies are stepping up investment in their own employees and facilities, along with products and services, out of a recognition that failure to do so will hinder their ability to compete in the future.</li><li>The pro-investment attitude of Indiana manufacturers comes in the face of worries about the federal regulatory climate (notably the implementation of healthcare reform), concerns over global competition and a pragmatic outlook about the potential for market growth.</li><li>Despite these headwinds, manufacturers realize that cost containment alone is not a sustainable business strategy, and are willing to spend on superior product design, logistics and customer service to compete even in an uncertain economy.</li><li>Human capital continues to be a major obstacle confronting Indiana manufacturers. Survey respondents identified skilled production workers as the most significant labor shortage facing their companies.&nbsp; Fortunately, there is significant momentum among industry leaders, policymakers and academic institutions to focus on the middle-skill challenge, align curricula with employer needs and re-energize vocational and technical education.&nbsp;</li></ul><p>&nbsp;&ldquo;Our findings from this year&rsquo;s survey show cause for optimism, as Hoosier manufacturers continue to invest and grow,&rdquo; said Mark Frohlich, associate professor of operations management at IU&rsquo;s Kelley School of Business. &ldquo;But economic and public policy hurdles, plus our ongoing human capital challenges mean that Indiana can&rsquo;t take its position as the nation&rsquo;s most manufacturing-intensive state for granted,&rdquo; added Steven Jones, associate professor of finance at IU&rsquo;s Kelley School of Business.</p><p>Frohlich and Jones went on to emphasize the need for continued focus on human capital and business climate to support the continued forward momentum in the manufacturing sector.</p><p>&ldquo;While this year&rsquo;s findings are a snapshot of attitudes and short-term reactions to the business cycle, it is the collective actions of employers, educators, economic developers and elected officials that will help determine the results of future surveys in years to come.&rdquo;</p><p>To view the complete results of the <em>2013 Indiana Manufacturing Survey: Manufacturing&rsquo;s Renaissance</em>, visit <a href="http://www.ksmcpa.com/2013-indiana-manufacturing-survey">ksmcpa.com/2013-indiana-manufacturing-survey</a>.</p><p align="center">###</p><p><strong>About Katz, Sapper &amp; Miller</strong></p><p>As one of the top 100 CPA firms in the nation, Katz, Sapper &amp; Miller has earned a reputation as a leader in the areas of accounting, tax and consulting services. Founded in 1942, the firm has more than 250 employees and is headquartered in Indianapolis, Ind. with offices in Fort Wayne, Ind. and New York. Katz, Sapper &amp; Miller was named one of the &ldquo;Best of the Best&rdquo; accounting firms in the nation by <em>INSIDE Public Accounting </em>magazine and has been recognized by the Indiana Chamber of Commerce as one of the &ldquo;Best Places to Work in Indiana&rdquo; for&nbsp;eight consecutive years. The firm is an independent member of Nexia International, a leading global organization of independent accounting and consulting firms. Learn more at <a href="www.ksmcpa.com" target="">www.ksmcpa.com</a>.</p><p><strong>About the Kelley School of Business &ndash; Indianapolis</strong></p><p>The Indiana University Kelley School of Business has been a leader in American business education for more than 90 years. With nearly 100,000 living alumni and an enrollment of nearly 8,000 students across two campuses, the Kelley School is among the premier business schools in the country. Kelley&rsquo;s Indianapolis campus, based at IUPUI, is home to a full-time undergraduate program and four graduate programs, including the Business of Medicine MBA for practicing physicians and the part-time Evening MBA, which is ranked ninth in the country by <em>U.S. News and World Report</em>. Learn more at&nbsp;<a href="http://www.kelley.iupui.edu/" target="_blank">kelley.iupui.edu</a>.</p><p><strong>About Conexus Indiana</strong></p><p>Launched by the Central Indiana Corporate Partnership, Conexus Indiana is the state&#39;s advanced manufacturing and logistics initiative, dedicated to making Indiana a global leader. Conexus is focused on strategic priorities like workforce development, creating new industry partnerships and promoting Indiana&#39;s advantages in manufacturing and logistics. Learn more at <a href="www.ConexusIndiana.com" target="_blank">ConexusIndiana.com</a>.</p><p><strong>About the Indiana Manufacturers Association</strong></p><p>Formed in 1901, the Indiana Manufacturers Association is the second oldest manufacturers association in the country and the only trade association in Indiana that exclusively focuses on manufacturing. The Indiana Manufacturers Association is dedicated to advocating for a business climate that creates, protects, and promotes quality manufacturing jobs in Indiana. Indiana is one of the top manufacturing states in America in the wealth and jobs created, sustained, and supported. More than 50 percent of all employment in Indiana has some connection to manufacturing.</p><p>The staff of the Indiana Manufacturers Association has more than 160 years of combined governmental affairs experience and is recognized as experts in many areas, including tax, environment, labor relations, human resources, and healthcare. Learn more at <a href="www.imaweb.com" target="_blank">imaweb.com</a>.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 16 Oct 2013 14:30:00 GMTThe Final “Repair and Maintenance” Regulations – Explaining the Impact on Business (Part I)http://www.ksmcpa.com/news-blog/the-final-repair-and-maintenance-regulations-explaining-the-impact-on-business-part-i
<p><em>Summary &ndash; The following is Part I of a multi-part series discussing the impact of new regulations governing when taxpayers deduct or capitalize expenditures related to tangible property. (<a href="http://www.ksmcpa.com/news-blog/the-final-repair-and-maintenance-regulations-explaining-the-impact-on-business-part-ii" target="">View Part II</a>.) With the effective date of Jan. 1, 2014, quickly approaching, taxpayers should give immediate attention to these new rules, as commentators agree that nearly all taxpayers will be affected. The new rules may require significant changes to a taxpayer&rsquo;s practices with respect to the capitalization or deduction of certain expenditures.</em></p><p>On Sept. 13, 2013, the Internal Revenue Service (IRS) released final rules concerning when taxpayers must capitalize and when they may deduct an expenditure related to acquiring, producing, maintaining or repairing tangible property. The final rules replace and remove previously issued temporary regulations under Internal Revenue Code (Code) Sec. 263(a) and 162(a). These new regulations <strong>must</strong> be followed by all taxpayers for tax years beginning Jan. 1, 2014. At a taxpayer&rsquo;s choosing, these rules <strong>may</strong> be followed by taxpayers for tax years beginning Jan. 1, 2012.&nbsp;</p><p>Code Sec. 263(a) requires the capitalization of amounts paid to acquire, produce or improve tangible property. A taxpayer generally recovers capital costs over time through depreciation or amortization deductions, or at the time of disposition, an inherently slower rate of recovery of any expenditure.&nbsp; Alternatively, Code Sec. 162(a) allows the deduction of ordinary and necessary business expenses incurred during the taxable year, including the cost of supplies, repairs and maintenance.&nbsp;</p><p>The new regulations attempt to provide guidance for distinguishing between deductible supplies, repairs, and maintenance, and capital expenditures. The new rules also discuss the disposition of depreciable property under Code Sec. 167 and 168. The final regulations cover five major topics:</p><ul><li>Capital expenditures (Reg. 1.263(a)-1)</li><li>Amounts paid for acquisition or production of tangible property (Reg. 1.263(a)-2)</li><li>Amounts paid for improvements to tangible property (Reg. 1.263(a)-3)</li><li>Repairs and maintenance (Reg. 1.162-4)</li><li>Materials and supplies (Reg 1.162-3)</li></ul><p>Part I of this series covers final rules related to capital expenditures.</p><p>Reg. 1.263(a)-1 provides that no deduction is allowed for: 1) any amount paid for new buildings or for permanent improvements or betterments made to increase the value of any property or estate; or 2) any amount paid in restoring property or in making good the exhaustion thereof for which a depreciation or amortization deduction has been taken. The ongoing dilemma for taxpayers has been the application of these rules to business activity. What constitutes an &ldquo;incidental&rdquo; repair? What is &ldquo;maintenance?&rdquo; How does one discern when an asset has increased in value or had its useful life extended? Can amounts that are capital in nature be deducted even though they are &nbsp;small in cost and do not distort income in the current or future taxable years?</p><p>Although Code states that no deduction is allowed for capital items, in practice taxpayers of all sizes frequently follow an expensing policy whereby expenditures under a certain cost threshold, whether capital or deductible, are deducted in the current taxable year. Such expensing policies were not previously addressed in Code or Regulations, except to the extent of rules requiring that methods of accounting not materially distort income in any taxable year. In an attempt to reduce controversy regarding expensing policies and promote consistency among taxpayers, the IRS has created rules to address expensing policies.&nbsp;</p><p>Called the &ldquo;de minimis rules,&rdquo; the final rules under Reg. 1.263(a)-1 establish safe harbors under which companies may deduct expenditures with a cost below certain thresholds. The first safe harbor provision allows taxpayers to deduct in the current taxable year amounts paid to acquire or produce tangible property, or for materials or supplies, equal to or less than $5,000 per invoice, or per item reported on an invoice.</p><p>This $5,000 safe harbor is not available to all taxpayers. In order to qualify, a taxpayer must prepare:</p><ul><li>A financial statement (the 10-K or the Annual Statement to Shareholders) required to be filed with the Securities and Exchange Commission (SEC)</li><li>A certified audited financial statement that is accompanied by the report of an independent certified public accountant (or in the case of a foreign entity, by the report of a similarly qualified independent professional) that is issued for:</li><li style="margin-left: 1in;">Credit purposes;</li><li style="margin-left: 1in;">Reporting to shareholders, partners, or similar persons; or</li><li style="margin-left: 1in;">Any other substantial non-tax purpose</li><li>A financial statement (other than a tax return) required to be provided to the federal or a state government or any federal or state agency (other than the SEC or the IRS).</li></ul><p>In addition to preparing one of the above reports (called &ldquo;applicable financial statements&rdquo;), taxpayers must:</p><ul><li>Have, at the beginning of the taxable year, a written accounting procedure treating as an expense for non-tax (i.e., book) purposes:</li><li style="margin-left: 1in;">Amounts paid for property costing less than a specified dollar amount; or</li><li style="margin-left: 1in;">Amounts paid for property with an economic useful life (defined under Reg. 1.162-3(c)(3)) of 12 months or less;</li><li>Treat the amount paid for the property as an expense on its applicable financial statement in accordance with its written accounting procedure</li><li>Limit the application of the policy to amounts paid for property that does not exceed $5,000 per invoice, or per item as reported and charged per invoice.</li></ul><p><strong>Example: De minimis safe harbor; taxpayer with applicable financial statement.</strong>&nbsp;Company C reports its financial results on an applicable financial statement. C has a written accounting policy at the beginning of Year 1, which is followed by C, to expense amounts paid for property costing $5,000 or less. In Year 1, C pays $6,250,000 to purchase 1,250 computers at $5,000 each. C receives an invoice from its supplier indicating the total amount due ($6,250,000) and the price per item ($5,000). Assume that each computer is a unit of property under &sect;1.263(a)-3(e). The amounts paid for the computers meet the requirements for the de minimis safe harbor. If C elects to apply the de minimis safe harbor, C may not capitalize the amounts paid for the 1,250 computers or any other amounts meeting the criteria for the de minimis safe harbor. Instead, C may deduct these amounts under &sect;1.162-1 in the taxable year the amounts are paid provided the amounts otherwise constitute deductible ordinary and necessary expenses incurred in carrying on a trade or business.</p><p>For companies who do not qualify for the $5,000 de minimis safe harbor, Reg. 1.263(a)-1 provides a similar safe harbor with a lower cost limit. Under this lower safe harbor, taxpayers may deduct in the current taxable year amounts paid to acquire or produce tangible property, or for materials or supplies, equal to or less than $500 per invoice, or per item reported on an invoice. In order to qualify for this safe harbor, a taxpayer must:</p><ul><li>Not prepare an applicable financial statement</li><li>Have at the beginning of the taxable year a written accounting procedure treating as an expense for non-tax (i.e. book) purposes &ndash;</li><li style="margin-left: 1in;">Amounts paid for property costing less than a specified dollar amount; or</li><li style="margin-left: 1in;">Amounts paid for property with an economic useful life (defined under Reg. 1.162-3(c)(3)) of 12 months or less</li><li>Treat the amount paid for the property as an expense on its books and records in accordance with its written accounting procedure</li><li>Limit the application of the policy to amounts paid for property that does not exceed $500 per invoice, or per item as reported and charged per invoice.</li></ul><p><strong>Example: De minimis safe harbor; taxpayer without applicable financial statement.</strong> In Year 1, Company B purchases 10 printers at $250 each for a total cost of $2,500, as indicated by the invoice. Assume that each printer is a unit of property under Section 1.263(a)-3(e). B does not have an applicable financial statement. B has accounting procedures in place at the beginning of Year 1 to expense amounts paid for property costing less than $500, and B treats the amounts paid for the printers as an expense on its books and records. The amounts paid for the printers meet the requirements for the de minimis safe harbor under Section 1.263(a)-1. If B elects to apply the de minimis safe harbor under this paragraph (f) in Year 1, B may not capitalize the amounts paid for the 10 printers or any other amounts meeting the criteria for the de minimis safe harbor. Instead, B may deduct these amounts under Section 1.162-1 in the taxable year the amounts are paid provided the amounts otherwise constitute deductible ordinary and necessary expenses incurred in carrying on a trade or business.</p><p>In addition to the above requirements of the de minimis rules, taxpayers should be aware of several other elements of the final regulations:</p><p><strong>The de minimis safe harbor is elective</strong>. Taxpayers relying upon the de minimis safe harbor must, in each taxable year in which amounts are deducted under the safe harbor, attach to their timely filed original federal tax return a statement title &ldquo;Section 1.263(a)-1(f) de minimis safe harbor election.&rdquo; The statement must include the taxpayer&rsquo;s name, address, taxpayer identification number, and a statement that the taxpayer is making the de minimis safe harbor election under Reg. Section 1.263(a)-1(f).</p><p><strong>Soft costs of tangible property not considered</strong>. For property deducted under the de minimis safe harbor, &ldquo;soft costs&rdquo; associated with acquisition or production of such property <em>are not included</em> in applying the $5,000 or $500 limits <em>if the costs are not included on the same invoice as the tangible property.</em> Soft costs might include, for example, delivery fees, installation services or similar costs necessary to put the property into service. If multiple items of property are billed on one invoice, along with soft costs that apply to some or all of the items of property, the taxpayer must allocate the soft costs to each item using a reasonable method. Reasonable methods may include, but are not limited to, specific identification, pro rata allocation, or weighted average based on the property&rsquo;s relative cost.</p><p><strong>Materials and supplies must be deducted</strong>. If a taxpayer elects to use the de minimis safe harbor, the taxpayer must also apply the safe harbor toward materials and supplies (as defined under Reg. 1.162-3).</p><p><strong>Section 263A rules still apply</strong>. Amounts otherwise deductible under the de minimis safe harbor may be subject to the capitalization requirements of Code Sec. 263A. Code Sec. 263A governs direct or indirect costs allocable to property produced or acquired by the taxpayer for resale.</p><p><strong>Anti-abuse rule</strong>. If a taxpayer acts to manipulate a transaction with the intent of circumventing the $5,000 or $500 expensing limits, the IRS will make the necessary adjustments to carry out the purposes of 1.263(a)-1. For example, if a taxpayer acquires an item of property and attempts to divide the acquisition cost of the item between multiple invoices, each of which are below the $5,000 or $500 expensing limits, the transaction may be recharacterized. Taxpayers must consider the complete and total expenditure for an item of property when applying the de minimis rules.</p><p>Please look for more information regarding the final repair and maintenance regulations in upcoming segments from this series. If you have questions about the de minimis safe harbor provisions, please contact your KSM advisor.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 02 Oct 2013 15:53:00 GMTQ&A on Affordable Care Act’s Individual Mandatehttp://www.ksmcpa.com/news-blog/q-a-on-affordable-care-act-s-individual-mandate
<p><strong>How does it affect individuals?</strong></p><p>While Congress recently delayed employers&rsquo; responsibilities under the Affordable Care Act until 2015, the deadline for the Act&rsquo;s Individual Mandate is still Jan. 1, 2014. The Mandate requires most individuals to have minimum essential health insurance coverage for themselves and their dependents. Those who do not comply will be subject to monthly penalties calculated on Form 1040 and paid as part of their federal income tax. Some individuals will be exempt from the Individual Mandate and others may receive financial assistance.</p><p><strong>Who is exempt from the coverage rules?</strong></p><p>The following individuals can qualify as exempt:</p><ul><li>Members of recognized religious sects</li><li>Members of healthcare sharing ministries</li><li>Nonresident aliens and illegal aliens; incarcerated individuals</li><li>American Indian tribe members</li><li>Those who have a short coverage gap (less than three months; only one permitted per year)</li><li>Those who do not have to file a personal income tax return</li><li>Individuals who cannot afford coverage (the coverage contribution would exceed eight percent of adjusted household income)</li><li>Individuals with a hardship exemption certificate</li></ul><p>Exemptions are granted either through a state marketplace or by the Internal Revenue Service (IRS) through the income tax filing process. If an individual&rsquo;s status changes during the year from exempt to nonexempt, the taxpayer would be responsible for having minimum essential health insurance for the remaining calendar months or would owe the penalty for those months. Coverage for one day of a month counts for the entire month.</p><p><strong>What is the minimum essential coverage?</strong></p><p>Generally, individuals will obtain the required minimum essential coverage through: an eligible employer-sponsored plan; an individual plan purchased through a state insurance marketplace; or, in states that have chosen not to establish a marketplace, a federal exchange. Individuals qualifying for Medicare Part A, Medicaid or certain other government-sponsored programs are considered to have the minimum essential coverage.</p><p><strong>What is a state insurance marketplace?</strong></p><p>State health insurance marketplaces, or Exchanges, will help individuals purchase affordable coverage. Exchanges will be supervised and provide access to Qualified Health Plans (QHPs) but will not issue insurance. Additionally, each Exchange will have a Small Business Health Options Program (SHOP) so certain small employers can offer their employees health insurance at an affordable rate. To purchase coverage through the Exchange, an individual will have to complete an application. The per-month cost of plans in Indiana is expected to range from under $100 for catastrophic coverage for individuals to almost $1,000 for premium coverage for a family of four. See <a href="http://blog.ksmcpa.com/blog/healthcare-reform-3/health-insurance-marketplace-premiums-for-2014" target="_blank"><strong>Health Insurance Marketplace Premiums for 2014</strong></a> for more detail on plan cost.</p><p><strong>What does not qualify as minimum essential coverage?</strong></p><p>Certain specialized coverage and limited scope insurance will not qualify. Examples of these types of nonqualifying plans include: workers&rsquo; compensation or similar insurance; dental or vision benefits; coverage where the medical benefits are secondary or incidental to the policy&rsquo;s other insurance benefits; and coverage for only a specified disease or illness.</p><p><strong>How does this affect U.S. citizens or nationals residing outside the U.S.?</strong></p><p>Those who live outside of the U.S. and meet either the bona fide residence test or the physical presence test for any month after Dec. 31, 2013, are considered to have met the coverage requirement for that month. In addition, individuals who are a bona fide resident of any U.S. possession for any month after Dec. 31, 2013, are deemed to meet the minimum essential coverage requirement for that month.</p><p><strong>What about the Individual Shared Responsibility Penalty?</strong></p><p>For every month that a nonexempt individual or the individual&rsquo;s nonexempt dependent lacks minimum essential coverage, a penalty will be imposed. According to the Congressional Budget Office, less than two percent of Americans will owe this penalty. <strong>Note:</strong> An individual is subject to the penalty only if he or she is alive for the entire month. Therefore, for example, a child born April 3 could not be subject to the penalty until May.</p><p><strong>How is the penalty calculated?</strong></p><p>The individual shared responsibility penalty is: 1) the lesser of the sum of the monthly penalty amounts for each individual claimed on Form 1040; or 2) the sum of the monthly national average premium for bronze-level qualified health plans that provide coverage for the applicable shared responsibility family. <strong>Note:</strong> Generally, a bronze plan is one that pays for 60 percent of all healthcare costs for an average person. The individual is responsible for the other 40 percent of costs.</p><p>The <em>monthly penalty amount</em> is an amount equal to one-twelfth of the <strong>greater</strong> of a <em>flat dollar amount</em> or an <em>excess income amount</em> that is based on a percentage of income. The flat dollar amount is the lesser of the sum of the applicable amounts for all individuals included in the taxpayer&#39;s shared responsibility family, or 300 percent of the applicable amount for the calendar year in which the tax year ends. For nonexempt individuals who are at least age 18, the applicable dollar amount is $95 for 2014, $325 for 2015, and $695 for 2016. The dollar amount for individuals who are under 18 on the first day of a month is half of the previously listed amounts. <strong>Note:</strong> When an individual turns 18 during the year, separate calculations must be performed to determine any penalty applicable for the months in the year before the birthday and the months after.</p><p>The <em>excess income amount</em> is the excess of the taxpayer&#39;s household income for the tax year over a threshold gross income amount multiplied by the income percentage. The <em>threshold gross income amount</em> is the amount of income required for an individual to file an income tax return for a particular year. The income percentage is 1 percent for tax years beginning in 2013 and 2014; 2 percent for tax years beginning in 2015; and 2.5 percent for tax years beginning in 2016 and later years.</p><p style="margin-left:.5in;"><strong>Example:</strong> Steven and Vanessa are a married couple with one dependent child, Micah, who is five years old in 2014. No member of the family has minimum essential coverage. Assume their annual household income is $119,500. Additionally, assume the filing threshold for a married couple is $19,500 for 2014 and continues to apply for tax years 2015 and 2016. For the applicable years, assume that the annual national average bronze plan premium for a family of three (two adults, one child) is $12,000.<br /><br />Steven and Vanessa&rsquo;s excess income each year is $100,000 ($119,500&minus;$19,500). The flat dollar amount for 2014 would be $237.50 ($95 X 2.5). Since their decline coverage in 2014, they would pay a $1,000 penalty (one percent of their excess income). If they had coverage for only two months, the penalty would decrease to $833 ($1,000/12 X 10). The penalty amount for a full year of noncoverage would rise to $2,000 in 2015 and $2,500 in 2016.</p><p><strong>How is the penalty reported and enforced?</strong></p><p>The individual shared responsibility penalty will be reported on an individual&rsquo;s income tax return. The IRS has indicated new forms will be developed that taxpayers will use to calculate the penalty. The penalty will be assessed and collected in the same manner as other penalties and is due upon notice and demand by the IRS. A taxpayer who fails to pay the penalty when filing a Form 1040 will receive a notice from the IRS. If the taxpayer still does not pay the penalty, the IRS can collect the penalty by reducing any future income tax refunds or offsetting credits the taxpayer may be due.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Fri, 27 Sep 2013 16:32:00 GMTErroneous Form 8955 and Form 5500 Penalty Noticeshttp://www.ksmcpa.com/news-blog/erroneous-form-8955-and-form-5500-penalty-notices
<p>Recently, the Internal Revenue Service (IRS) acknowledged two processing glitches. First, in August approximately 4,000 plan sponsors received notices that erroneously informed them that the IRS was assessing a penalty due to their &quot;filing a late or incomplete&quot; Form 8955-SSA. The IRS has contacted or is contacting the affected taxpayers to inform them that the penalty assessment was an error.</p><p>Second, the IRS has experienced a problem processing the Form 5500 filed under approved extensions. Most of the situations appear to follow a consistent pattern: first, the Form 5558 was filed in late July 2013 (the due date was July 31, 2013); the Form 8955-SSA and/or Form 5500 was then filed in the early part of August 2013 (typically, within the first two weeks of the month); and, finally, the plan sponsor received a penalty notice.</p><p>The <a href="http://www.asppa.org/Home-Page/About-ASPPA.aspx" target="_blank" title="American Society of Pension Professionals &amp; Actuaries (ASPPA)">American Society of Pension Professionals &amp; Actuaries (ASPPA)</a>&nbsp;has been speaking with a representative of the IRS regarding this issue. The representative stated that the issue seems to stem from the timing of the submission of the various forms. The Form 5500 and Form 5558 are processed through different computer programs. Because the Form 5500 has a lower number, it is processed first. Then, the Form 5558 is processed. If the Form 5500 (which was submitted in early August) is processed before the Form 5558 (which was timely submitted in late July), then an erroneous penalty notice will be produced and sent to the plan sponsor.</p><p>According to the representative, plan sponsors or their representatives can <a href="http://www.irs.gov/" target="_blank" title="contact the IRS">contact the IRS</a> regarding the issue and the penalty will be abated (assuming the Form 5558 was timely filed). The IRS representative also recommended that if practitioners and plan sponsors are going to file the Form 5558 in late July, then they should <strong><em>not &nbsp;</em></strong>file the Form 8955-SSA and/or Form 5500 in the first part of August.</p><p><em>Source: ASPPA</em></p>cdjonlich@ksmcpa.com (Chris Djonlich)Thu, 26 Sep 2013 17:49:00 GMTIRS Issues Final Rules Related to Amounts Paid to Acquire, Produce or Improve Tangible Propertyhttp://www.ksmcpa.com/news-blog/irs-issues-final-rules-related-to-amounts-paid-to-acquire-produce-or-improve-tangible-property
<p>The question of whether an expenditure is currently deductible (e.g., as repairs or materials and supplies) or whether it should be capitalized has been a continuing source of controversy between the Internal Revenue Service (IRS) and taxpayers.</p><p>In an attempt to aid taxpayers in distinguishing between capital expenditures and deductible business expenses, the IRS has issued final regulations under Code Sections 162(a) and 263(a). The final regulations replace temporary regulations under Code Sections 162(a) and 263(a), and also affect rules related to accounting for and disposing of depreciable property under Code Section 167.</p><p>The final regulations are effective for tax years beginning on or after Jan. 1, 2014. It is expected that nearly all taxpayers will be impacted by these new rules.</p><p>KSM is reviewing the new regulations and will be providing guidance to help clients understand these new rules. In the meantime, please contact your KSM advisor if you have specific questions.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 18 Sep 2013 20:39:00 GMTState & Local Tax Update - 9/18/13http://www.ksmcpa.com/news-blog/state-local-tax-update-9-18-13
<p><span style="font-weight: 700;">2013 Trending for Indiana Real Property Taxes</span><br />Indiana counties are currently wrapping up their 2013 trending assessments. During a trending year, county and township assessors are required to review arms-length transaction sales within a given time period and trend values up or down accordingly. Once the values have been updated, ratio studies are required to be submitted to the Department of Local Government Finance (DLGF). The DLGF will review the ratio study and approve or deny it. Once the ratio study has been approved and values have been certified, counties will start releasing notice of assessments.</p><p>Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their tax bill, it is often too late to appeal the assessed value for that year. Some counties have already mailed their notice of assessments, and the 45-day appeal period is well underway.</p><p>We would be happy to review the reassessed value of your commercial property to help you consider whether an appeal should be filed. For assistance, contact your KSM advisor or KSM property tax leader&nbsp;<a href="http://www.ksmcpa.com/chad-m-miller" target="" title="Chad Miller">Chad Miller</a>&nbsp;as soon as you receive your Form-11.&nbsp;</p><div style="margin-top: 10px; margin-bottom: 6px; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(204, 204, 204);">&nbsp;</div><p><strong>Indiana Issues Guidance on New Lake County Local Option Income Tax</strong><br />The Indiana Department of Revenue has issued guidance concerning the Lake County local option income tax (LOIT). Effective Oct. 1, 2013, Lake County has adopted a 1.5 percent net rate; however, because the tax does not become effective until October, a prorated rate of 0.375 percent will be used for calculating the Lake County tax on the 2013 income tax returns. Lake County residents working in Indiana will have the county tax withheld from their paychecks beginning in October 2013; taxpayers making estimated tax payments during the year should increase the amount paid to accommodate the new county tax. Finally, the taxpayer&#39;s county tax will be calculated when filing the 2013 Indiana individual income tax return. (See <a href="http://www.in.gov/dor/reference/files/lake-county-loit-faqs.pdf" target="_blank" title="Lake County LOIT&nbsp;FAQ's">Lake County LOIT&nbsp;FAQs</a> for more information.)</p><p><strong>Idaho Changes Position on Guaranteed Payments</strong><br />The Idaho State Tax Commission announced the reporting of partners&#39; guaranteed payments from partnerships for tax year 2013 is significantly different due to legislative changes. Effective Jan. 1, 2013, guaranteed payments to an individual nonresident or part-year resident partner up to $250,000 in a calendar year are sourced as compensation for services. Any amount over $250,000 is sourced to Idaho, based on the Idaho apportionment factor. The $250,000 threshold is adjusted annually for inflation in future years.</p><p><strong>Illinois Court Rules on Cook County Non-Titled Personal Property Use Tax</strong><br />The Cook County Circuit Court has issued preliminary injunctions ordering the Cook County non-titled personal property use tax is preliminarily enjoined and cannot be imposed until further order of the Cook Court Circuit Court. For the pendency of the order, Cook County cannot cash any check received from any non-titled personal property use tax taxpayer for payment of the tax for any return date following the July 20, 2013, return date (Reed Smith v. Ali, Cook County Cir. Ct., Dkt. No. 2013 L 050454, 08/01/2013; Horwood Marcus &amp; Berk Chtd. v. Cook County Department of Revenue, Cook County Cir. Ct., Dkt. No. 13 L 050470, 08/01/2013).</p><p><strong>Kentucky Issues Guidance on Cost of Goods Sold Deduction for Limited Liability Entity Tax</strong><br />The Kentucky Department of Revenue has issued a Tax Alert explaining the costs of goods sold for purposes of calculating the limited liability entity tax (LLET). For taxpayers who are engaged in manufacturing, producing, reselling, retailing or wholesaling, the amounts allowable as cost of goods sold must be directly incurred in acquiring or producing a tangible product generating the Kentucky gross receipts. Tangible product means both real and tangible personal property. Cost of goods sold for purposes of computing the LLET only includes direct labor costs and direct material costs. The test is whether the cost is direct or indirect, not whether the cost is necessary. For example, an assembly line worker is direct labor, while an administrative assistant in human resources or an engineer in quality control is not. Examples of the categories of costs that are not allowed in cost of goods sold for purposes of computing LLET (and are typically listed as indirect costs) include: utilities, repairs, maintenance, rent, depreciation, insurance and quality control. For taxpayers who are not engaged in manufacturing, producing, reselling, retailing, or wholesaling, no costs are included in cost of goods sold. For those taxpayers, Kentucky gross profits would be reduced only by returns and allowances attributable to Kentucky gross receipts. See <a href="http://revenue.ky.gov/NR/rdonlyres/BEEF6070-20CF-4D15-81AC-662D0B4F2DEA/0/KYTaxAlertSept2013.pdf" target="_blank" title="Kentucky Tax Alert">Kentucky Tax Alert</a> for details.</p><p><strong>Ohio Creates New Deduction for Pass-Through Income</strong><br />In recently passed HB 59, Ohio&rsquo;s definition of adjusted gross income was amended to exclude 50 percent of an individual taxpayer&rsquo;s apportioned Ohio income from a pass-through entity. The so-called small business tax deduction is capped at $125,000 in business income. Although limited guidance has been issued by the Ohio Department of Taxation, it appears as though the taxpayer must file a return at the individual level to avail itself of the deduction. Pass-through entities, including those filing composite returns on behalf of nonresident shareholders, will not be afforded the deduction. The deduction is effective for the 2013 tax year.</p><p><strong>Oklahoma Changes Eligibility for Participation in Composite Return</strong><br />Oklahoma Administrative Code &sect; 710:50-19-1, effective July 11, 2013, has been amended to provide that any partnership with two or more nonresident eligible partners is eligible to file a composite partnership return and eliminate a rule that partners who were S-Corporations (or elect to be so treated), partnerships, trusts, and C-Corporations generally could not be included in the composite return.</p><p><strong>Tennessee Rules on Deductibility of IC-Disc Dividends</strong><br />The Tennessee Department of Revenue has ruled compensation paid by an IC-DISC in the form of a dividend for federal tax purposes is not deductible from net earnings for Tennessee excise tax purposes. The Internal Revenue Code does not provide a deduction for dividends paid to individual shareholders of an IC-DISC, even if the dividends are paid in lieu of a salary. Thus, the dividends paid by the IC-DISC to its shareholders are not deductible as compensation and, consequently, are included in federal taxable income. It follows that IC-DISC dividends paid to shareholders and included in federal taxable income are also included in &ldquo;net earnings&rdquo; for purposes of the Tennessee franchise and excise tax. (See <a href="http://www.tennessee.gov/revenue/rulings/fae/13-08fe.pdf" target="_blank" title="Tennessee Letter Ruling 13-08">Tennessee Letter Ruling 13-08</a> for details.)&nbsp;</p><p>For more information, contact&nbsp;<a href="http://www.ksmcpa.com/donna-l-niesen" target="" title="Donna Niesen">Donna Niesen</a>&nbsp;at&nbsp;<a alias="dniesen@ksmcpa.com" conversion="undefined" href="mailto:dniesen@ksmcpa.com" title="dniesen@ksmcpa.com">dniesen@ksmcpa.com</a>.&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 18 Sep 2013 18:58:00 GMTEmployer Notices Regarding Health Care Exchange Due Oct. 1, 2013http://www.ksmcpa.com/news-blog/employer-notices-regarding-health-care-exchange-due-oct-1-2013
<p>While the employer mandate has been delayed until 2015, most of the other provisions of the Patient Protection and Affordable Care Act (PPACA or ObamaCare) are still on target to take effect as originally proposed. One important deadline is the Oct. 1, 2013 notice requirement created by Section 1512 of the PPACA. This notice requirement applies to all employers covered by the Fair Labor Standards Act (FLSA), even if the employer does not offer a health insurance plan to its employees.</p><p><strong>Does FLSA apply?</strong></p><p>In general, the FLSA applies to any employer engaged in interstate commerce who employs one or more people and whose sales are greater than $500,000 per year.</p><p>In addition to operating businesses, the FLSA also applies to the following types of entities:</p><ul><li>Hospitals</li><li>Institutions primarily engaged in the care of the sick, the aged, or the mentally ill or developmentally disabled who live on the premises</li><li>Pre-school, elementary or secondary school, or institutions of higher learning</li><li>School for mentally or physically handicapped or gifted children</li><li>Federal, state, or local government agency</li></ul><p>Employers can utilize the Department of Labor&#39;s (DOL) assessment tool to determine if the FLSA applies to their business:&nbsp;<a href="http://www.dol.gov/elaws/esa/flsa/scope/screen24.asp" target="_blank" title="www.dol.gov/elaws/esa/flsa/scope/screen24.asp">www.dol.gov/elaws/esa/flsa/scope/screen24.asp</a></p><p><strong>Who should receive the notice?</strong></p><p>FLSA-covered employers must provide a notice of coverage options to all current employee (full- or part-time). Employers are not required to provide a separate notice to dependents or any other non-employees covered or eligible for the health plan.</p><p><strong>What should the notice include?</strong></p><p>The notice must inform employees of their coverage options and should include information regarding the new Health Insurance Marketplace (Marketplace), also known as state exchanges. Specifically, the notice should include:</p><ul><li>Contact information for and services provided by the Marketplace</li><li>Information on how an employee may be eligible for a premium tax credit if they purchase coverage through the exchange</li><li>A statement that if an employee purchases a plan through the exchange, they could lose their employer contribution to any health benefits offered by the employer</li></ul><p>A sample notice can be found on the DOL&#39;s website:&nbsp;<a href="http://www.dol.gov/ebsa/healthreform" target="_blank" title="www.dol.gov/ebsa/healthreform">www.dol.gov/ebsa/healthreform</a>. (Note: The website includes one sample notice for employers who offer a health plan and a second sample notice for employers who do not offer a health plan.)</p><p><strong>When does the notice need to be provided?</strong></p><p>The employer must provide the notice to all current employees (full- or part-time) by Oct. 1, 2013. Any new employee hired on or after Oct. 1, 2013 should receive the notice no later than 14 days after their start date. The notice must be in writing and can be delivered in any one of three ways:</p><ol><li>Employers may hand deliver the notice to each employee</li><li>Employers may mail the notice via first-class U.S. Mail to each employee</li><li>Employers may deliver the notice electronically to each employee if the DOL&#39;s electronic disclosure safe harbor requirements are met (29 CFR 2520.104b-1(c))</li></ol><p>For more information, contact your KSM advisor.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 11 Sep 2013 18:37:00 GMTTruck Times - Issue 2, 2013http://www.ksmcpa.com/news-blog/truck-times-issue-2-2013
<p><strong><span style="font-size:18px;">In This Issue:</span></strong></p><p><a href="http://www.ksmcpa.com/the-affordable-care-act-and-the-3-8-medicare-tax-transportation" target=""><strong>The Affordable Care Act and the 3.8% Medicare Tax</strong></a><br />In December 2012, the Internal Revenue Service (IRS) issued proposed regulations that expand upon the Patient Protection and Affordable Care Act of 2010 (Affordable Care Act). One of the provisions of the Affordable Care Act is Code Section 1411, Unearned Income Medicare Contribution Tax. The new law and proposed regulations may affect the transportation industry, as certain individuals may have an additional tax liability, depending on their income.<br /><span style="color: rgb(154, 153, 153); font-size: 12px;">By </span><a href="http://www.ksmcpa.com/doug-n-rubenstein" target=""><span style="font-size: 12px;">Douglas Rubenstein</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/advances-to-owner-operators-and-company-drivers" target=""><strong>Advances to Owner-Operators and Company Drivers</strong></a><br />With hundreds of drivers across the country, transportation companies use various methods to pay for fuel and other company expenses. Carriers typically pay these expenses through a secure credit card, such as a Comdata Card, or by issuing an authorized check number, which a driver can cash at most major truck stops. With the cost of operating a truck constantly rising, it is not uncommon for carriers to advance money to owner-operators to help cover these expenses, or provide payroll advances to their own company drivers.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><span style="font-size: 12px;">Matt Gard</span><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/what-is-your-trucking-company-worth" target=""><strong>What is Your Trucking Company Worth?</strong></a><br />Valuation is always a topic of great interest to transportation company owners. Companies today have made the difficult decisions necessary to operate successfully through the Great Recession. While demand has increased in recent years, challenges persist due to regulation, driver demand and fluctuating fuel costs. How has the company&rsquo;s value been impacted by the challenges faced during the Great Recession? And most importantly to business owners: how to build a higher value for my business?&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/andrew-j-manchir" target=""><span style="font-size: 12px;">Andrew Manchir</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, ASA, CMA</span></p><p><a href="http://www.ksmcpa.com/how-to-navigate-a-successful-turnaround" target=""><strong>How to Navigate a Successful Turnaround</strong></a><br />Although the trucking industry has seemingly recovered over the past couple of years, some trucking companies continue to struggle. The struggles can result from industry specific challenges such as volatile fuel prices, the driver shortage, increased cost of equipment and regulations and/or company specific challenges such as aging equipment, poor management and lack of processes/procedures. A deteriorating operating ratio and failed financial covenants are just a couple of signs that a company may be headed down the path to becoming a turnaround candidate.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/jason-i-miller" target=""><span style="font-size: 12px;">Jason Miller</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p class="ksm-separator-line">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/truck-times-issue-2-2013" target=""><em>Truck Times</em></a> is a bi-annual newsletter that focuses on the financial side of the transportation industry.</p><p class="ksm-separator-line">&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 11 Sep 2013 13:46:00 GMTHighway Use Tax Return Due Sept. 3 for Most Truckershttp://www.ksmcpa.com/news-blog/highway-use-tax-return-due-sept-3-for-most-truckers
<p>The Internal Revenue Service (IRS) is reminding truckers and other owners of heavy highway vehicles that in most cases, their next federal highway use tax return is due on Tuesday, Sept. 3, 2013.</p><p>This year&rsquo;s Sept. 3 due date, pushed back three days because the normal Aug. 31 deadline falls on a Saturday, generally applies to <a href="http://www.irs.gov/uac/Form-2290,-Heavy-Highway-Vehicle-Use-Tax-Return" target="_blank">Form 2290</a> and the accompanying tax payment for the tax year that begins on July 1, 2013, and ends on June 30, 2014. Returns must be filed and tax payments made by Sept. 3 for vehicles first used on the road during July. For vehicles first used after July, the deadline is the last day of the month following the month of first use.</p><p>Though some taxpayers have the option of filing Form 2290 on paper, the IRS encourages all taxpayers to take advantage of the speed and convenience of filing this form <a href="http://www.irs.gov/uac/e-file-Form-2290" target="_blank">electronically</a> and paying any tax due electronically. Taxpayers reporting 25 or more vehicles must e-file. A list of <a href="http://www.irs.gov/uac/e-file-for-Excise-Tax-Filers" target="_blank">IRS-approved</a> software providers can be found on IRS.gov.</p><p>Due to facility maintenance taking place over the Labor Day weekend, the IRS will be unable to accept or acknowledge receipt of any electronically filed returns from 10:00 p.m. ET on Saturday, Aug. 31, to 5:30 a.m. ET on Tuesday, Sept. 3 and should be available for all users at noon on Sept. 3. The IRS asks taxpayers to e-file Form 2290 before 10:00 p.m. ET on Aug. 31. Paper returns must be mailed and postmarked by midnight on Sept. 3. IRS offices will be closed on Labor Day, Monday, Sept. 2.</p><p>The highway use tax applies to highway motor vehicles with a taxable gross weight of 55,000 pounds or more. This generally includes trucks, truck tractors and buses. Ordinarily, vans, pick-ups and panel trucks are not taxable because they fall below the 55,000-pound threshold. The tax of up to $550 per vehicle is based on weight, and a variety of special rules apply, explained in the instructions to Form 2290.</p><p>More information on the impact of the facility maintenance and the federal highway use tax is available at <a href="http://IRS.gov/truckers" target="_blank">IRS.gov/truckers</a>.</p><p><em>Source: IRS website</em></p>cdjonlich@ksmcpa.com (Chris Djonlich)Tue, 27 Aug 2013 20:23:00 GMTState & Local Tax Update - 8/20/13http://www.ksmcpa.com/news-blog/state-local-tax-update-8-20-13
<p><span style="font-size:18px;"><strong>Property Tax Alert &ndash; Indiana</strong></span></p><p><strong>Notice of property assessments issued by Hamilton County</strong><br />Hamilton County notice of property assessments were mailed July 26, 2013. This fact is significant, especially if you own commercial property in Hamilton County and it is over-assessed. As soon as tax bills or notice of assessments are mailed, the appeal clock begins. Indiana allows 45 days from the date of the mailing for a property owner to appeal the assessed value.</p><p>This means the deadline to appeal your Hamilton County commercial property tax assessment is Sept. 9, 2013.</p><div style="border-top: 1px solid #ccc; margin: 10px 0 6px;">&nbsp;</div><p>We are frequently asked by clients if there is a quick way to determine if their commercial property is over-assessed. Our response is, &quot;Could you sell this property for this amount?&quot; If the answer is &quot;no,&quot; then there is a good chance it is over-assessed. This also means there is a good chance you can appeal the assessment.</p><p>We encourage you to visit our <a href="http://www.ksmcpa.com/indiana-property-tax-appeals" target="" title="appeal calculator">appeal calculator</a> to determine approximately how much potential savings a successful appeal could save you.</p><p>An even more reliable way to determine if your commercial property has been over-assessed is to take advantage of Katz, Sapper &amp; Miller&#39;s <strong>free property tax review services</strong>. If such an opportunity exists, our property tax team can assist commercial property owners through the appeals process.</p><p>If you are interested in a free review, please contact KSM&#39;s property tax leader, <a href="http://www.ksmcpa.com/chad-m-miller" target="" title="Chad Miller">Chad Miller</a> at 317.580.2058 or <a alias="cmmiller@ksmcpa.com" conversion="undefined" href="mailto:cmmiller@ksmcpa.com" title="cmmiller@ksmcpa.com">cmmiller@ksmcpa.com</a>.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Tue, 20 Aug 2013 17:36:00 GMTConstruction & Real Estate Industry Advisor - Issue 1, 2013http://www.ksmcpa.com/news-blog/construction-real-estate-industry-advisor-issue-1-2013
<p><strong><span style="font-size:18px;">In This Issue:</span></strong></p><p><a href="http://www.ksmcpa.com/the-affordable-care-act-and-the-3-8-medicare-tax" target=""><strong>The Affordable Care Act and the 3.8% Medicare Tax</strong></a><br />In December 2012, the Internal Revenue Service (IRS) issued proposed regulations that expand upon the Patient Protection and Affordable Care Act of 2010 (Affordable Care Act). One of the provisions of the Affordable Care Act is Code Section 1411, Unearned Income Medicare Contribution Tax. The new law and proposed regulations may affect the real estate and construction industries, as certain individuals may have an additional tax liability, depending on their income. <span style="color: rgb(154, 153, 153); font-size: 12px;">By </span><a href="http://www.ksmcpa.com/doug-n-rubenstein" target=""><span style="font-size: 12px;">Douglas Rubenstein</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/updated-proposed-accounting-rules-for-leases" target=""><strong>Updated Proposed Accounting Rules for Leases</strong></a><br />No accounting issue in recent memory has been in discussion longer and more highly anticipated than the Financial Accounting Standard Board&rsquo;s (FASB) and International Accounting Standards Board&rsquo;s (IASB) leasing convergence project.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/michael-e-north" target=""><span style="font-size: 12px;">Michael North</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/the-tiff-over-tifs" target=""><strong>The Tiff Over TIFs</strong></a><br />Tax Increment Finance districts, or TIFs, have been around for a long time. They work this way: A boundary line is drawn around an area of property. This area can be a single parcel, or it can extend for blocks and blocks. A snapshot is taken of the property taxes paid within the TIF at the time the district is established. Then, bonds are issued based on the new incremental property taxes resulting from the increase in assessed value that occurs within the TIF after its establishment date.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/tim-c-cook" target=""><span style="font-size: 12px;">Tim Cook</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, JD</span></p><p><a href="http://www.ksmcpa.com/maintaining-your-ability-to-be-bond-worthy" target=""><strong>Maintaining Your Ability to be &ldquo;Bond Worthy&rdquo;</strong></a><br />In today&rsquo;s economy, risk-averse project owners are more likely to require bonds. At the same time, there are fewer sureties in business, and those who are still active have become more rigorous in their evaluation and approval of bond requests. So it is critical for contractors to show that they are &ldquo;bond worthy.&rdquo; Here are five tips for doing just that.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/thomas-a-nowak" target=""><span style="font-size: 12px;">Thomas&nbsp;Nowak</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/section-263a-uniform-capitalization-rules" target=""><strong>Section 263A: Uniform Capitalization Rules</strong></a><br />The Uniform Capitalization (UNICAP) rules of Section 263A of the Internal Revenue Code (IRC) prescribe the method for determining the types and amounts of costs that must be capitalized rather than expensed in the current period. The UNICAP rules apply to those who, in the course of their trade or business, produce real property for use in the business or activity; produce real property for sale to customers; or acquire property for resale.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/jolaine-l-hill" target=""><span style="font-size: 12px;">Jolaine Hill</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/the-research-credit-and-the-construction-industry" target=""><strong>The Research Credit and the Construction Industry</strong></a><br />The Credit for Increasing Research Activities &ndash; commonly known as the R&amp;D credit &ndash; is intended to serve as an incentive to develop new and improved products and/or processes. Taxpayers typically envision the research credit applying only to product manufacturers, drug manufacturers, and the like. However, the credit is currently available to any taxpayer that participates in qualified research activities and has qualified research expenses paid or incurred on or before Dec. 31, 2013.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><span style="font-size: 12px;">Alyson Lurker</span><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA, JD</span></p><p class="ksm-separator-line">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/construction-real-estate-industry-advisor-issue-1-2013" target=""><em>Construction &amp; Real Estate Industry Advisor</em></a> is a bi-annual newsletter that focuses on the financial side of the construction and real estate industries.</p><p class="ksm-separator-line">&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Fri, 16 Aug 2013 20:22:00 GMTThe Advisor - Issue 1, 2013http://www.ksmcpa.com/news-blog/the-advisor-issue-1-2013
<p><strong><span style="font-size:18px;">In This Issue:</span></strong></p><p><a href="http://www.ksmcpa.com/the-affordable-care-act-what-it-means-to-large-employers" target=""><strong>The Affordable Care Act: What it Means to Large Employers</strong></a><br />After legislative attempts to repeal The Patient Protection and Affordable Care Act (the Act), a Supreme Court decision concluding that the Act was constitutional, and a myriad of political gesturing, all indicators suggest that the substantive parts of the Act will go into effect in 2014. <span style="color: rgb(154, 153, 153); font-size: 12px;">By </span><span style="font-size: 12px;">William Graff</span><span style="color: rgb(154, 153, 153); font-size: 12px;">, JD, LL.M</span></p><p><a href="http://www.ksmcpa.com/using-a-cash-balance-plan-as-a-tax-strategy" target=""><strong>Using a Cash Balance Plan as a Tax Strategy</strong></a><br />With the signing of The American Taxpayer Relief Act of 2012 (ATRA) on Jan. 2, 2013, several tax increases are now in place for 2013 and future years. The ATRA increases the tax burden on high earners on a number of fronts.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/karen-e-noel" target=""><span style="font-size: 12px;">Karen E. Noel</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, MBA, QKA</span></p><p><a href="http://www.ksmcpa.com/foreign-currency-gains-and-losses-on-branch-remittances" target=""><strong>Foreign Currency Gains and Losses on Branch Remittances</strong></a><br />There are many instances when fluctuations in foreign currency exchange rates impact U.S. taxable income. This article focuses on the translational gains and losses that most commonly occur when a U.S. person&rsquo;s foreign branch transfers its assets (actual or deemed) to such U.S. persons.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><span style="font-size: 12px;">Katherine Malarsky</span><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/lifo-method-issues-to-consider" target=""><strong>LIFO Method: Issues to Consider</strong></a><br />On April 10, 2013, President Obama released the proposed budget for the 2014 fiscal year. Included in the budget is another proposal to repeal the last-in, first-out (LIFO) method of inventory accounting.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/donald-r-boezeman" target=""><span style="font-size: 12px;">Donald R. Boezeman</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/Reducing-Client-Costs-in-Civil-Litigation-The-Advisor" target=""><strong>Reducing Client Costs in Civil Litigation</strong></a><br />While one of the primary objectives of the United States civil justice system is to provide the parties with speedy and inexpensive resolutions, those that have been involved in litigation know this is rarely the case.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/jay-r-cunningham" target=""><span style="font-size: 12px;">Jay R. Cunningham</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span></p><p><a href="http://www.ksmcpa.com/social-media-three-fears-how-to-conquer-them-and-why-companies-should" target=""><strong>Social Media: Three Fears, How to Conquer Them, and Why Companies Should</strong></a><br />Formerly, social media referred to a daughter&rsquo;s Twitter account, a spouse&rsquo;s Pinterest page, or a son&rsquo;s Facebook page &mdash; rarely used in business &mdash; but social media has evolved to become a valuable business tool.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><span style="font-size: 12px;">Caroline Lemke</span></p><p><a href="http://www.ksmcpa.com/to-capitalize-or-expense" target=""><strong>To Capitalize or Expense</strong></a><br />To borrow a line from Shakespeare, to capitalize, or not to capitalize: that is the question. Whether it is appropriate to capitalize or expense certain cash outflows is a common question for private company owners.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><span style="font-size: 12px;">Matt Bishop</span><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA, MBA</span></p><p class="ksm-separator-line">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/the-advisor-issue-1-2013" target=""><em>The Advisor</em></a> is a bi-annual newsletter that focuses on business and tax solutions for today&#39;s entrepreneur.</p><p class="ksm-separator-line">&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Thu, 08 Aug 2013 12:52:00 GMTState & Local Tax Update - 8/6/13http://www.ksmcpa.com/news-blog/state-local-tax-update-8-6-13
<p><strong>2013 Trending for Indiana Real Property Taxes</strong><br />Indiana counties are currently wrapping up their 2013 trending assessments. During a trending year, county and township assessors are required to review arms-length transaction sales within a given time period and trend values up or down accordingly. Once the values have been updated, ratio studies are required to be submitted to the Department of Local Government Finance (DLGF). The DLGF will review the ratio study and approve or deny it. Once the ratio study has been approved and values have been certified counties will start releasing notice of assessments.</p><p>Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their tax bill, it is often too late to appeal the assessed value for that year. Some counties have already mailed their notice of assessments, and the 45-day appeal period is well underway.</p><p>We would be happy to review the reassessed value of your commercial property to help you consider whether an appeal should be filed. For assistance, contact your KSM advisor or KSM property tax leader <a href="http://www.ksmcpa.com/chad-m-miller" target="" title="Chad Miller">Chad Miller</a> as soon as you receive your Form-11.&nbsp;</p><div style="border-top: 1px solid #ccc; margin: 10px 0 6px;">&nbsp;</div><p><strong>Indiana Rules on Business v. Nonbusiness Income</strong><br />A waste handling and recycling equipment manufacturing company&#39;s income, derived from a corporate restructuring, was classified as apportionable business income. The taxpayer, originally organized as a C corporation, voluntarily converted into a limited liability company. For federal income tax purposes, the conversion to an LLC was considered a taxable sale of assets for their fair market value, and the taxpayer recognized gain on the transaction equal to the difference between the proceeds and its basis in the assets sold. Ind. Code &sect;&nbsp;6-3-1-20 defines the term &ldquo;business income&rdquo; as income arising from transactions and activity in the regular course of the taxpayer&#39;s trade or business and includes income from tangible and intangible property if the acquisition, management and disposition of the property constitutes integral parts of the taxpayer&#39;s regular trade or business operations. Accordingly, the term &ldquo;nonbusiness income&rdquo; means all income other than business income.</p><p>Because the taxpayer did not provide the Indiana Department of State Revenue with sufficient information to allow a determination as to whether the income from the sale of business assets falls outside the scope of what constitutes its business income, the Department decided to treat it as business income until the taxpayer is able to show why the income should be treated as nonbusiness. The Department also determined that the taxpayer&#39;s sales of intangible business assets within Indiana are to be apportioned to Indiana and included in the taxpayer&#39;s calculation of the sales factor. See <a href="http://www.in.gov/legislative/iac/20130731-IR-045130332NRA.xml.html">Revenue Ruling IT 2013-01</a> for details.</p><p><strong>Indiana Tax Court Rules on Income from Partnership Interest</strong><br />The Indiana Tax Court has ruled that the income a telecommunications company received as a partner of a general partnership had the character of operational income and was therefore subject to the adjusted gross income tax. The company owned a 45 percent interest in a general partnership that provided wireless voice and data services and communications equipment to customers throughout the U.S. Upon receiving its distributive shares of partnership income, the company filed Indiana adjusted gross income tax returns, reporting a portion of its income was attributable to, and therefore taxable by, Indiana. However, the company subsequently amended its returns and sought a refund of the tax it paid on the basis that it had erroneously determined that its income was derived from sources within Indiana; the Indiana Department of State Revenue denied the refund claim.</p><p>In an original tax appeal, the company argued that despite the fact it was a partner in a general partnership, a &ldquo;lack of control&rdquo; placed it in essentially the same position as being a limited partner, or a true &ldquo;passive investor,&rdquo; and accordingly, its income was dividend income received from investing in the partnership &ndash; not income derived from sources within Indiana, and therefore not taxable. However, the Court concluded that the mere fact the company was a partner in a general partnership gives its income from that partnership the character of operational income; as such, its distributive share of income is not income in the form of dividends from investments and, therefore, subject to tax. See <a href="http://www.in.gov/judiciary/opinions/pdf/06181301tgf.pdf">Vodafone Americas Inc., et al. v. Indiana Department of State Revenue</a> for details of the case.&nbsp;</p><p><strong>Arizona Conforms to &sect;179</strong><br />Arizona law limits its addition to income for Code Sec. 179 expense deductions in excess of $25,000 to tax years beginning before Jan. 1, 2013. Thus, for tax years beginning on or after that date, Arizona conforms to Code Sec. 179.</p><p><strong>Illinois Supreme Court Upholds Amnesty Double Interest</strong><br />The Illinois Supreme Court has held that the phrase &ldquo;all taxes due&rdquo; in the state&#39;s 2003 Tax Amnesty Program means taxes that were properly reportable when the initial tax return was required to be filed, rather than taxes known to be due during the amnesty period. As such, a corporation that failed to make a good-faith estimate of its increased tax liability and also failed to pay tax owed during the amnesty period was subject to the program&#39;s double interest penalty. See <a href="http://www.state.il.us/court/opinions/SupremeCourt/2013/114234.pdf">Metropolitan Life Insurance Co., et al. v. Hamer, et. al.</a> for details.</p><p><strong>Massachusetts Updates Pass-Through Withholding Guidance</strong><br />The Massachusetts Department of Revenue amends an existing regulation to clarify and reflect changes in the way it administers the withholding program. In particular, the information originally required on an annual schedule for pass-through entities is now obtained via electronically filed schedules K-1. Changes allow entities to collect exemption certificates from exempt members only once (rather than annually) and provide that the certificates remain valid until revoked. Amendments also allow more time for the exemption certificates to be collected; they are now due at the end of the fourth month of the entity&#39;s taxable year, rather than the end of the first month. (830 CMR 62B.2.2, effective Aug. 2, 2013.)</p><p><strong>Minnesota Issues Guidance Regarding Treatment of QSSS</strong><br />The Minnesota Department of Revenue has issued a revenue notice explaining the Minnesota income tax and corporate franchise tax treatment of a qualified Subchapter S subsidiary (QSSS). Included in the summary is a discussion of the disregarded nature of QSSS in Minnesota for both income and minimum fee calculation purposes. See <a href="http://www.revenue.state.mn.us/law_policy/revenue_notices/RN_13-01.pdf">Notice 2013-01</a> for details.</p><p><strong>Nebraska Updates Guidance on Warranty/Maintenance Contracts</strong><br />The Nebraska Department of Revenue has updated its sales and use tax information guide concerning warranties, guarantees, service agreements and maintenance agreements &ndash; all of which are taxable when the property covered or the services to be provided are taxable. The guide lists several examples of taxable maintenance agreements, which include agreements covering: appliances and building/fixtures; computer hardware and prewritten and custom software; copiers, printers and scanners; live plants; machinery; mobile devices; and motor vehicles.</p><p>Sales tax is due on a taxable maintenance agreement whether the agreement is sold by the retailer of the property or by a third party, and regardless of how the charges are invoiced. Sales of taxable maintenance agreements are subject to sales tax regardless of whether the agreement is mandatory or optional. A charge for the renewal or extension of a taxable maintenance agreement is also taxable. Taxable maintenance agreements are subject to sales tax at the rate imposed at the location of the property covered by the agreement at the time of the sale of the agreement. The guide also lists several types of maintenance agreements that are sales tax exempt. Additionally, the guide provides specific rules related to the taxability of repair labor or replacement parts when furnished under labor-only maintenance agreements as well as maintenance agreements that do not provide full coverage for parts and labor. See <a href="http://www.revenue.ne.gov/info/6-516.pdf">Nebraska Information Guide 6-516-2013</a> for details.</p><p><strong>New York Appellate Court Upholds MTA Payroll Tax as Constitutional</strong><br />The New York Supreme Court, Appellate Division, reversing the trial court, has declared that the Metropolitan Commuter Transportation Mobility Tax Law was properly enacted and, therefore, the Metropolitan Transportation Authority payroll tax is constitutional. See <a href="http://law.justia.com/cases/new-york/appellate-division-second-department/2013/2012-09463.html">Mangano, et al. v. Silver, et al.</a> for details.</p><p><strong>Ohio Makes E-File/E-Pay Mandatory for All CAT Taxpayers</strong><br />The Ohio Department of Taxation has issued a release that contains an amendment to Ohio Adm. Code 5703-29-05, specifying that both annual and quarterly CAT taxpayers must file and pay electronically. The amendment to this rule addresses the change in L. 2013, H59, which allows the Tax Commissioner to require an annual taxpayer to file and pay electronically. The Department intends to have annual taxpayers file and pay electronically with tax periods beginning on Jan. 1, 2014.</p><p><strong>Tennessee Revises Local Business Privilege Tax</strong><br />Tennessee recently revised the business privilege tax laws so that all five classes of business privileges are subject to tax by the state, except where a municipality levies a business tax, by ordinance, on classes one through four, in which case the privileges are subject to tax by the municipality. Every municipality levying the tax as of Jan. 1, 2014, is treated as having made an election to continue its tax at the same rate that was already in effect and is not required to pass an additional ordinance. Any incorporated municipality that elects, after Jan. 1, 2014, to levy the tax or to change the rate of the tax, must levy the tax at the rates fixed and provided in present law.</p><p>Any person engaged in Tennessee &ndash; in a business that falls under classes one through four but without a physical place of business in the state &ndash; is subject to the state business tax and exempt from the municipal business tax. For purposes of the tax, a business would be engaged in business in Tennessee if it: 1) performed any service in Tennessee that was received by a customer in Tennessee; 2) leased tangible personal property in Tennessee; 3) delivered tangible personal property to a buyer in Tennessee, if delivered by the seller in the seller&#39;s own vehicle; or 4) purchased and subsequently sold tangible personal property in Tennessee in a wholly in-state transaction, where the purchase and sale were accomplished through the presence in Tennessee of the seller&#39;s employees, agents, or independent contractors.</p><p>The law revises the current exemption for any business in Tennessee having a total value of sales of less than $3,000 per year and instead provides that: 1) any person having sales of less than $10,000 within a county would be exempt from the state business tax and the licensing provisions with respect to the sales sourced to that county; 2) any person having sales of less than $10,000 within a municipality would be exempt from the municipal tax and the licensing with respect to the sales sourced to that municipality; and 3) any person subject to the tax who does not have a place of business in Tennessee and has sales of less than $10,000 within a county would be exempt from the tax with respect to the sales occurring in that county.</p><p>The law also provides that the minimum business tax of $22 applies per location, and that any person subject to the tax that has no established place of business in Tennessee is subject to a single $22 minimum tax for all activity within Tennessee. If a taxpayer has more than one location within the county or municipality, a separate license, and payment of the $15 license fee, would be required for each location; persons who are not only exempt from the business tax and licensing requirements but also have sales between $3,000 and $10,000 per year within the jurisdiction must be issued a minimal activity license upon application and payment of $15. Under the law, the business tax will not apply to providers of direct-to-home satellite television programming services for any tax year that begins on or before July 1, 2014, and the business tax on sales of gasoline and diesel fuel at wholesale decreases from 0.1 percent to 0.03125 percent. Finally, the law requires the Commissioner to allow a single, electronic business tax filing that includes all of the information required by the Commissioner to determine the amount of tax properly due to each jurisdiction. See <a href="http://wapp.capitol.tn.gov/apps/billinfo/BillSummaryArchive.aspx?BillNumber=SB0183&amp;ga=108">SB 183</a> for details.</p><p><strong>Texas Enacts Amendments to Franchise Tax</strong><br />On June 14, 2013, Texas Governor Rick Perry signed legislation that amends the state&#39;s franchise tax. For report years 2014 and 2015, a temporary election for lower tax rates is provided. Additionally, the bill also provides exemptions, exclusions and a credit for the rehabilitation of historic structures as well as other computational and reporting changes. Changes include an exclusion from total revenue of motor carriers for flow-through funds derived from taxes and fees, and repeal of the provision requiring a combined group to include gross receipts for each member of the group that does not have nexus with Texas in its report. Changes are effective Jan. 1, 2014. See <a href="http://www.capitol.state.tx.us/tlodocs/83R/billtext/html/HB00500F.htm">HB 500</a> for details. &nbsp;&nbsp;</p><p><strong>Washington Enacts Exemptions from B&amp;O Tax</strong><br />On June 30, 2013, Washington Governor Jay Inslee signed into law legislation expanding Business and Occupation (B&amp;O) tax and sales and use tax preferences. The bill creates or extends exemptions for taxpayers in numerous businesses and industries, including payroll services, agriculture, restaurants, financial information, alternative energy, blood and tissue collection, amusement and recreation, and aviation. See <a href="http://apps.leg.wa.gov/documents/billdocs/2013-14/Pdf/Bills/Session%20Laws/Senate/5882-S.SL.pdf">S5882</a> for details.&nbsp;</p><p>For more information, contact <a href="http://www.ksmcpa.com/donna-l-niesen" target="" title="Donna Niesen">Donna Niesen</a> at <a alias="dniesen@ksmcpa.com" conversion="undefined" href="mailto:dniesen@ksmcpa.com" title="dniesen@ksmcpa.com">dniesen@ksmcpa.com</a>.&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Tue, 06 Aug 2013 20:11:00 GMTLitigation Services Bulletin - Summer 2013http://www.ksmcpa.com/news-blog/litigation-services-bulletin-summer-2013
<p><strong><span style="font-size:18px;">In This Issue:</span></strong></p><p><a href="http://www.ksmcpa.com/Reducing-Client-Costs-in-Civil-Litigation" target=""><span style="font-weight: 700;">Reducing Client Costs in Civil Litigation</span></a><br />While one of the primary objectives of the United States civil justice system is to provide the parties with speedy and inexpensive resolutions, those that have been involved in litigation know this is rarely the case. <span style="color: rgb(154, 153, 153); font-size: 12px;">By </span><a href="http://www.ksmcpa.com/jay-r-cunningham" target=""><span style="font-size: 12px;">Jay R. Cunningham</span></a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span><br /><br /><a href="http://www.ksmcpa.com/damages-expert-can-present-alternative-theory-of-damages" target=""><span style="font-weight: 700;">Damages Expert Can Present Alternative Theory of Damages</span></a><br />The plaintiff, who owns patented technology for cleaning automotive intake systems, filed infringement claims against the defendant, which sells products for automotive maintenance and cleaning.<br /><br /><a href="http://www.ksmcpa.com/expert-s-unconventional-method-to-forecast-lost-profits-satisfies-daubert" target=""><span style="font-weight: 700;">Expert&rsquo;s Unconventional Method to Forecast Lost Profits Satisfies <em>Daubert</em></span></a><br />Each party disputed a breach of a 2003 exclusive distribution agreement. The plaintiff&rsquo;s expert, a certified public accountant and credentialed business appraiser, prepared an initial report that assumed the contract would have remained in effect indefinitely and projected lost profits over 70 years.<br /><br /><a href="http://www.ksmcpa.com/patent-experts-have-limited-latitude-to-comply-with-new-damages-standards" target=""><span style="font-weight: 700;">Patent Experts Have Limited Latitude to Comply with New Damages Standards</span></a><br />The first decision in this malpractice case concerns the defendant&rsquo;s <em>Daubert </em>motion against the plaintiff&rsquo;s damages expert; the second involves a motion to dismiss all claims based on the same alleged flaws in the expert evidence.<br /><br /><a href="http://www.ksmcpa.com/expert-s-damages-in-cookie-case-crumbles" target=""><span style="font-weight: 700;">Expert&rsquo;s Damages in Cookie Case &hellip; Crumbles</span></a><br />In a new <em>Daubert </em>decision, Judge Richard Posner of the U.S. Court of Appeals for the 7th Circuit continues on his judicial quest for tightening the gatekeeping role in patent cases.</p><p class="ksm-separator-line">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/litigation-services-bulletin-summer-2013" target=""><em>Litigation Services Bulletin</em></a>&nbsp;is a quarterly newsletter that focuses on&nbsp;<span style="font-size: 14px; line-height: 19px;">the latest developments in litigation services and financial damages expert consulting</span>.</p><p class="ksm-separator-line">&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Tue, 30 Jul 2013 14:51:00 GMTStandards Updates - 7/30/13http://www.ksmcpa.com/news-blog/standards-updates-7-30-13
<p><strong>FASB Issues Three Proposed Accounting Alternatives for Private Companies</strong></p><p>The Private Company Council (PCC) has proposed, and the Financial Accounting Standards Board (FASB) has endorsed, three Accounting Standards Updates (ASUs) for public comment that would allow exceptions to accounting principles generally accepted in the United States (GAAP) for privately held companies. The proposals are designed to reduce some of the complexity of GAAP requirements that many private company stakeholders believe are not relevant for private companies. The three proposals address using alternative approaches for the accounting of 1) intangible assets acquired in a business combination, 2) goodwill and 3) certain interest rate swaps.</p><p>The following is a summary of each of the proposed ASUs:</p><ul><li><a name="top"></a><a href="#One" target="">Proposed ASU &ndash; Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination (a proposal of the PCC)</a><br />&nbsp;</li><li><a href="#Two" target="">Proposed ASU &ndash; Intangibles-Goodwill and Other (Topic 350): Accounting for Goodwill (a proposal of the PCC)</a><br />&nbsp;</li><li><a href="#Three" target="">Proposed ASU &ndash; Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps (a proposal of the PCC)</a></li></ul><div style="margin: 0px; border-top: #cccccc 1px solid">&nbsp;</div><p><a name="One"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a><a href="http://www.fasb.org/cs/ContentServer?c=Document_C&amp;pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176163067240" target="_blank"><strong>Proposed ASU &ndash; <em>Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination</em> (a proposal of the PCC)</strong></a></p><p>Under this proposal, a private company would have an alternative approach for the recognition, measurement and disclosure of intangible assets acquired in a business combination. Currently, GAAP requires that all intangibles that are separately identifiable to be recognized and measured at fair value at the date of the acquisition. The proposal would allow private companies to only recognize those intangibles that arise from noncancelable contractual terms or those arising from other legal rights.&nbsp; Otherwise, other intangible assets (i.e., customer lists, non-contractual relationships and recipes) would not be separated from goodwill in the business combination. This will potentially lead to fewer intangible assets being recognized and more goodwill being recognized. Private companies electing this alternative accounting would still be required to apply current disclosure requirements, in addition to disclosing additional qualitative information on the intangible assets acquired but not recognized separately from goodwill.</p><p>The proposed ASU indicates that private companies that elect to adopt this alternative accounting would be required to prospectively apply the proposed ASU to all intangible assets arising from new business combinations. Early adoption would be permitted.</p><div style="margin: 0px; border-top: #cccccc 1px solid">&nbsp;</div><p><a name="Two"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a><a href="http://www.fasb.org/cs/ContentServer?c=Document_C&amp;pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176163067282" target="_blank"><strong>Proposed ASU &ndash; <em>Intangibles-Goodwill and Other (Topic 350): Accounting for Goodwill</em> (a proposal of the PCC)</strong></a></p><p>This proposal would allow private companies to elect simplified accounting for goodwill, including amortization of goodwill and frequency and methodology of impairment testing. Under this proposal, a private company would be allowed to amortize goodwill that has been recognized in a business combination. The amortization of the goodwill will be permitted using the straight-line method over the useful life of the primary asset acquired in the business combination, not to exceed 10 years. The primary asset is the &ldquo;principal identifiable long-lived tangible or intangible asset that is the most significant asset from which the acquired business derives its cash-flow-generating capacity.&rdquo; Private companies would also be allowed to test goodwill for impairment only when a triggering event occurs, instead of the current requirement to test at a minimum annually. Additionally, the impairment of goodwill will be tested at a company-wide level and not at the reporting-unit level as is currently required by GAAP. The proposal would eliminate the current step two of the goodwill impairment test. Instead, entities would measure goodwill impairment as the excess of the entity&rsquo;s carrying amount over its fair value (current step one).</p><p>Private companies that elect to use the alternative accounting for goodwill would be required to prospectively apply the proposed ASU to all existing goodwill and any new goodwill resulting from future business combinations. Early adoption would be permitted.</p><div style="margin: 0px; border-top: #cccccc 1px solid">&nbsp;</div><p><a name="Three"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a><a href="http://www.fasb.org/cs/ContentServer?c=Document_C&amp;pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176163067260" target="_blank"><strong>Proposed ASU &ndash; <em>Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps</em> (a proposal of the PCC)</strong></a></p><p>Under this proposal, a private company would have two simpler approaches to account for certain types of interest rate swaps that are entered into to convert variable-rate debt borrowings to fixed-rate debt. Current rules require entities to recognize an asset or liability for interest rate swaps measured at fair value, with a corresponding impact to either the income statement or other comprehensive income depending on the swaps effectiveness. Under both proposed approaches, the periodic income statement charge for interest would be similar to the amount that would result if the private company were to have entered into fixed-rate borrowings instead of variable-rate borrowings. Under the first approach called the &ldquo;combined instrument approach,&rdquo; private companies would not recognize the interest rate swap on the balance sheet, except for any accrual or receivable for the next settlement. The second approach called the &ldquo;simplified hedge accounting approach&rdquo; would allow private companies to assume no hedge ineffectiveness, and record the interest rate swap on the balance sheet at the settlement price, instead of fair value. There are various criteria that would have to be met in order to use either of these simplified approaches.</p><p>Private companies electing either of these alternative approaches would still be required to apply current disclosure requirements, in addition to disclosing additional qualitative information on the swaps and the adoption of an approach.</p><p>Companies that elect to apply the combined instruments approach would have to apply the approach to all qualifying swaps that exist as of the date of adoption and to all future qualifying swaps. Companies that elect to apply the simplified hedge accounting approach can apply it on a swap-by-swap basis to any qualifying swap existing as of that date and to any future qualifying swap. Early adoption would be permitted.&nbsp;</p><div style="border-top: 1px solid #ccc; margin: 10px 0 6px;">&nbsp;</div><p>These proposed accounting alternatives should reduce the cost and complexities associated with current accounting for these three areas. The alternative accounting approaches are optional, and will generally be available to any private company, which the FASB has yet to define. The comment deadline for all three proposals is Aug. 23, 2013.</p><p>In addition to the above proposals, the PCC has voted to expose a proposed alternative for private companies that apply the variable interest entity consolidation guidance to common control leasing arrangements. The proposed alternative, PCC Issue No. 13-02, <em>Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements (formerly FIN 46(R) and FAS 167),</em> would exempt private companies from applying the consolidation guidance for variable interest entities under common control leasing arrangements. The disclosures required under the alternative would better provide information that lenders and other users of private company financial statements typically use in assessing the cash flows of an entity. The FASB staff will draft a detailed proposal, which the FASB will discuss and vote on. If endorsed by the FASB, a proposed ASU will be issued for public comment regarding this alternative.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Tue, 30 Jul 2013 14:01:00 GMTProfitable Solutions for Nonprofits Spring/Summer 2013http://www.ksmcpa.com/news-blog/profitable-solutions-for-nonprofits-spring-summer-2013
<p><strong><span style="font-size:18px;">In This Issue:</span></strong></p><p><a href="http://www.ksmcpa.com/Nonprofit-Mergers-When-Joining-Forces-Is-the-Answer" style="font-weight: 700;" target="">Nonprofit Mergers: When Joining Forces Is the Answer</a><br />One in 12 respondents to a recent <em>GuideStar Economic Survey</em> said they believed their nonprofit was in danger of closing for financial reasons. Organizations dealing with a lack of either financial or human resources should start looking for solutions. Joining forces with another nonprofit is one strategy to consider. When researched and executed carefully, a merger can make both organizations stronger. <span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/scott-a-schuster" style="font-size: 12px;" >Scott A. Schuster</a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span><br /><br /><span style="font-weight: 700;"><a href="http://www.ksmcpa.com/Managing-Risks-with-Special-Events-Insurance" target="">Managing Risks with Special Events Insurance</a></span><br />In order to raise revenue, nonprofits may organize large-scale special events, which can prove effective, but may also carry significant risks. Proper insurance coverage should be considered to help protect organizations from those risks.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/peter-a-buck" style="font-size: 12px;" >Peter A. Buck</a><span style="color: rgb(154, 153, 153); font-size: 12px;">, CPA</span><br /><br /><span style="font-weight: 700;"><a href="http://www.ksmcpa.com/Are-Nonprofits-Ready-Three-Significant-Developments-in-Outreach-Technology" target="">Are Nonprofits Ready? Three Significant Developments in Outreach Technology</a></span><br />Nonprofits focus heavily on engaging with their supporters and building relationships. In the digital age, the emphasis on engagement has created interest around using technology to help nonprofits improve those relationships and enhance engagement.&nbsp;<span style="color: rgb(154, 153, 153); font-size: 12px;">By&nbsp;</span><a href="http://www.ksmcpa.com/robert-b-saling" style="font-size: 12px;" >Robert B. Saling</a>&nbsp;<br /><br /><a href="http://www.ksmcpa.com/Newsbits-Profitable-Solutions-for-Nonprofits-Spring-Summer-2013" style="font-weight: 700;" target="">Newsbits</a><br />Accounting Standards Update (ASU) 2012-05, from the Financial Accounting Standards Board (FASB), addresses the diversity of nonprofit practices for classifying cash receipts from the sale of certain donated financial assets (including securities) in their statement of cash flows.</p><p class="ksm-separator-line">&nbsp;</p><p>Katz, Sapper &amp; Miller&rsquo;s&nbsp;<a href="http://www.ksmcpa.com/profitable-solutions-for-nonprofits-spring-summer-2013" target=""><em>Profitable Solutions for Nonprofits</em></a>&nbsp;is a quarterly newsletter that focuses on tax and accounting issues for the not-for-profit industry.</p><p class="ksm-separator-line">&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Mon, 08 Jul 2013 14:31:00 GMTDelay in Certain Affordable Care Act Provisionshttp://www.ksmcpa.com/news-blog/delay-in-certain-affordable-care-act-provisions
<p>On July 2, 2013, the Obama administration announced a one year delay in the implementation of the several components of the Affordable Care Act (ACA). Consequently, implementation of many employer and insurer reporting requirements, employer penalty provisions and other provisions of the ACA will be delayed until Jan. 1, 2015.</p><p>The U.S. Department of Treasury expects to publish proposed regulations over the summer, which will likely encourage voluntary reporting of certain information in 2014, while not requiring such reporting until 2015.</p><p>This announcement will also delay the imposition of shared responsibility payments on employers until 2015. However, employees&rsquo; access to premium tax credits will still be available in 2014.</p><p>The delay will not apply to several related income tax changes that take effect in 2013, including the imposition of additional taxes on income other than earned income.</p><p>This delay will require detailed scrutiny of all of the provisions of the ACA in order to determine which provisions will actually be delayed and which provisions will still be implemented as scheduled.</p><p>KSM is continuously monitoring the regulatory process and will advise you as additional guidance is provided by the Treasury.&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 03 Jul 2013 15:05:00 GMTNew PCORI Fee to be Imposed on Sponsors of Health Planshttp://www.ksmcpa.com/news-blog/new-pcori-fee-to-be-imposed-on-sponsors-of-health-plans
<p>The Affordable Care Act (ACA) created a new fee called the Patient-Centered Outcomes Research Institute (PCORI) fee. This fee is to be used to fund research on medical treatment effectiveness and is to be paid by both fully insured and self-funded group health plans.</p><p>The fee for the first year is $1 per person enrolled in the plan. A person enrolled in the plan includes the participating employee, spouses, domestic partners and dependents. COBRA and retiree participants also must be counted. The fee is due based on the year-end of the plan, beginning with plans ending on or after October 1, 2012. For plans with years ending in October, November or December 2012, a filing will be <u>due on or before July 31, 2013</u>. The fee must be reported on IRS Form 720, &ldquo;Quarterly Federal Excise Tax Return.&rdquo;</p><p>If you are an employer with a fully insured group health plan, no action is required as your health insurance carrier is required to report and pay this fee. This additional fee is most likely built into the premiums that you currently pay.</p><p>If you are an employer with a self-funded plan, you are responsible for calculating the fee, completing the Form 720 and paying the related fee.</p><p>The following plans are considered self-funded plans that are subject to the PCORI fee and the Form 720 filing requirement:</p><ul><li>All self-funded group health plans, including Health Reimbursement Accounts (HRAs)</li><li>An HRA that is offered as part of a fully insured group health plan &ndash; the fee is paid only on the HRA part of the plan</li><li>A stand-alone HRA plan</li><li>On-site medical clinics</li><li>Retiree-only group health plans</li><li>Employee Assistance Programs (EAPs) &ndash; only if the EAP provides significant medical benefits</li></ul><p>The following plans are exempt from the PCORI fee:</p><ul><li>Employee Assistance Programs (EAPs) &ndash; does not provide significant medical benefits</li><li>Individual Health Savings Accounts (HSAs)</li><li>Health and Dependent Flexible Spending Accounts (FSAs)</li><li>Stand-alone dental plans</li><li>Stand-alone vision plans</li></ul><p>Upon determination that you have a self-funded plan, you must complete the IRS Form 720 (revised version dated April 2013). The form may be completed manually and mailed directly to the IRS (not required to be filed electronically).</p><p>The fee is based on the average number of enrollees for the plan year. Most employers should be able to obtain this information directly from their benefit plan service provider(s). If you have to calculate the number of enrollees yourself, there are three methods that you may choose from to determine the average number of enrollees. The methods are as follows:</p><ol><li>The Form 5500 Method: If the plan is required to file Form 5500 and your 2012 Form 5500 is filed timely and before July 31, 2013, this method can be used. To use this method, add the number of participants at the beginning of the year (Part II, line 5 of Form 5500) to the total participants at the end of the year (Part II, line 6d) and divide the total by 2.Then multiply this total by $1.</li><li>The Actual Count Method: This method uses the number of lives covered for each day of the plan year divided by the number of days in the plan year.</li><li>The Snapshot Method: This method uses the total number of lives covered on a given date in each quarter of the plan year. The sum is then divided by 4.</li></ol><p>The following sections of the Form 720 will need to be completed (assuming that the Form 720 is being filed only to report the PCORI fee):</p><ul><li>Complete the top section of the form. The quarter ending is the second quarter, which is June 2013.</li><li>Go to Part II, line 133. The &ldquo;Applicable self-insured health plans&rdquo; line is going to be completed. In column a, report the average number of lives covered. Multiply the number in column a by $1 and enter that amount. This calculated amount will also be entered in the tax column.</li><li>Go to Part III and enter the total tax on line 3. Show 0 on line as no payments have been made towards this tax. Line 10 will show the amount due with the return.</li><li>Sign and date the return on the bottom of page 2.</li><li>Page 7 is the payment voucher that should be completed. Darken the circle for &ldquo;2<sup>nd</sup> Quarter&rdquo; on line 3.</li></ul><p>The fee does not need to be paid using EFTPS. We recommend paying by check this first year as the IRS has not established a history of tracking payments.</p><ul><li>Make your check out to the United States Treasury.</li><li>Mail the signed and completed Form 720, the payment voucher, and your check to:</li><li style="margin-left: 1in">Department of the Treasury<br />Internal Revenue Service<br />Cincinnati, OH 45999-0009</li><li>If you want to use FedEx, UPS or DHL, the address to send your return to is:</li><li style="margin-left: 1in">IRS Processing Center<br />201 W. Rivercenter Blvd.<br />Covington, KY 41011</li></ul><p><em>The contents of this message are for informational purposes only. If you have any questions regarding the PCORI fee and filing requirement, please contact your benefit plan service provider or any of the following KSM advisors.</em></p><p><a href="http://www.ksmcpa.com/bill-w-barks" >Bill Barks</a>, Partner<br />317.844.4882</p><p><a href="http://www.ksmcpa.com/patrick-r-brauer" >Patrick Brauer</a>, Partner<br />317.844.4873&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p><a href="http://www.ksmcpa.com/bernadette-fletcher" >Bernadette Fletcher</a>, Director<br />317.580.2134</p><p><a href="http://www.ksmcpa.com/karen-e-noel" >Karen Noel</a>, Director<br />317.844.4879</p><p><a href="http://www.ksmcpa.com/jolaine-l-hill" >Jolaine Hill</a>, Director<br />317.580.2446</p>cdjonlich@ksmcpa.com (Chris Djonlich)Tue, 02 Jul 2013 15:22:00 GMTSimplified Home Office Deductionhttp://www.ksmcpa.com/news-blog/simplified-home-office-deduction
<p>The IRS has simplified the home office deduction. The calculation of the actual deduction is complex and requires extensive recordkeeping. However, taxpayers now have the option to claim a safe harbor home office deduction in lieu of calculating and substantiating the actual amount of the home office deduction.</p><p><strong>Background and Actual Deduction</strong></p><p>To qualify for the home office deduction, the area in the home used for business must be used exclusively and regularly in accordance with one of the following three tests: the principal place of business test; the place for meeting patients, clients or customers test; or the separate structure test.</p><p><em>Principal place of business.</em> Your home office is your principal place of business if it satisfies either a &quot;management or administrative activities&quot; test or a &quot;relative importance&quot; test. You satisfy the management or administrative activities test if you use your home office for administrative or management activities of your business, and if you meet certain other requirements. You meet the relative importance test if your home office is the most important place where you conduct your business, in comparison with all the other locations where you conduct that business.</p><p><em>Home office used for meeting patients, clients or customers.</em> You can satisfy this test if you use your home office, exclusively and on a regular basis, to meet or deal with patients, clients or customers. The patients, clients or customers must be physically present in the home office.</p><p><em>Separate structures.</em> A separate, unattached structure on the same property as your home can qualify as a home office if it is used exclusively and regularly in connection with a business activity.</p><p>If your home office area satisfies the rules discussed above, the actual calculation of your home office deduction would include:</p><ul><li>The &quot;direct expenses&quot; of the home office, such as the costs of painting or repairing the home office, depreciation deductions for furniture and fixtures used in the home office, etc.; and</li><li>The &quot;indirect&quot; expenses of maintaining the home office, such as the properly allocable share of utility costs, depreciation, insurance, etc., for your home, as well as an allocable share of mortgage interest, real estate taxes and casualty losses.</li></ul><p><strong>New Safe Harbor</strong></p><p>The IRS is now providing a simplified method for determining the amount of a home office deduction. Effective for tax years beginning on or after Jan. 1, 2013, a taxpayer can elect to use the safe harbor with respect to his or her qualified home office (i.e., the area meets one of the three tests described above).</p><p>The safe harbor is calculated as $5 per square foot of qualified use (up to 300 square feet). This safe harbor calculation provides an alternative to the calculation, allocation, and substantiation of actual expenses that would otherwise be required. The safe harbor calculation may substantially reduce the record keeping burden for an individual who qualifies for a home office deduction.</p><p>For more information, contact your KSM advisor.&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Fri, 28 Jun 2013 15:13:00 GMTState & Local Tax Update - 6/18/13http://www.ksmcpa.com/news-blog/state-local-tax-update-6-18-13
<p><strong>2013 Trending for Indiana Real Property Taxes</strong><br />Indiana counties are currently wrapping up their 2013 trending assessments. During a trending year, county and township assessors are required to review arms-length transaction sales within a given time period and trend values up or down accordingly. Once the values have been updated, ratio studies are required to be submitted to the Department of Local Government Finance (DLGF). The DLGF will review the ratio study and approve or deny it. Once the ratio study has been approved and values have been certified counties will start releasing notice of assessments.</p><p>Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their tax bill, it is often too late to appeal the assessed value for that year. Some counties have already mailed their notice of assessments, and the 45-day appeal period is well underway.</p><p>We would be happy to review the reassessed value of your commercial property to help you consider whether an appeal should be filed. For assistance, contact your KSM advisor or KSM property tax leader <a href="http://www.ksmcpa.com/chad-m-miller" target="" title="Chad Miller">Chad Miller</a> as soon as you receive your Form-11.&nbsp;</p><div style="border-top: 1px solid #ccc; margin: 10px 0 6px;">&nbsp;</div><p><strong>U.S. Senate Passes Marketplace Fairness Act</strong><br />The U.S. Senate has passed S743, the Marketplace Fairness Act of 2013. S743 generally provides that states can require remote sellers to collect sales tax on goods shipped to consumers in the state. The bill provides an exception for small retailers that have $1 million or less of gross annual receipts in total remote sales in the United States for the preceding calendar year. The bill has been referred to the House Committee on the Judiciary.</p><p><strong>Indiana Lawmakers Override Governor&#39;s Veto</strong><br />On June 12, the Indiana House voted 68-23 and the Indiana Senate 34-12 to override Governor Pence&#39;s veto of HEA 1546: Tax Administration. The bill, which will now become law, addresses withholding remittance due dates, late penalties for partnerships and corporations, sales tax on gasoline, Jackson and Pulaski County LOIT extension, Vigo County Innkeeper&#39;s tax, and other tax related provisions. See <a href="http://www.in.gov/legislative/bills/2013/HE/HE1546.1.html" target="_blank" title="HEA 1546">HEA 1546</a> for details.</p><p><strong>Indiana Rules Texas Franchise Tax Is a Required Add Back</strong><br />A telephone company was required to add back Texas Franchise Tax to federal taxable income for the purpose of calculating its Indiana adjusted gross income. Ind. Code &sect; 6-3-1-3.5(b) requires an add back for taxes based on or measured by income in calculating adjusted gross income. As the result of an audit, the Department of Revenue issued a proposed assessment for additional income tax due to the taxpayer&#39;s failure to add back the Texas Franchise Tax. In its protest, the taxpayer argued that it was not required to add back the tax because the Texas Franchise Tax is not an income tax. The Department ruled that because the Texas tax starts with and is based on the entity&#39;s income as reported on the federal income tax, it is apparent that the tax is based on or measured by income and, therefore, should be added back. See <a href="http://www.in.gov/legislative/iac/20130424-IR-045130139NRA.xml.html" target="_blank" title="LOF 02-20120562">LOF 02-20120562</a> for details.</p><p><strong>Indiana Rules on Software Maintenance Agreements</strong><br />A taxpayer&#39;s purchases of computer software maintenance agreements, which included services, were considered unitary transactions and, therefore, subject to use tax on the total amount of the maintenance agreements. As the result of an audit, the taxpayer was assessed use tax on the total contract price of software maintenance agreements. The taxpayer was charged one price for the contract, a portion of which represented services such as phone support. Although the taxpayer protested the portion of the assessment related to the services, the Department of Revenue determined that the software agreements were unitary transactions that included items of personal property and services, which are furnished under a single order or agreement and for which a total combined charge or price is calculated. Accordingly, the entire contract price of the maintenance agreements, including the amount representing services, was subject to use tax, rather than just the portion relating to the software. See <a href="http://www.in.gov/legislative/iac/20130424-IR-045130152NRA.xml.html" target="_blank" title="LOF 04-20120689 ">LOF 04-20120689</a> for details.</p><p><strong>Arizona Issues New Guidance on Composite Returns</strong><br />The Arizona Department of Revenue reiterates that it will accept a composite return of the qualifying nonresident shareholders of an S corporation or of the qualifying nonresident individual partners of a partnership in lieu of each such shareholder or each such partner filing a separate Arizona individual income tax return, provided certain conditions are met. The new ruling also sets forth the limitations and conditions that will apply to the members included in the composite return; describes what the filing of the composite return will consist of; explains how to compute each member&#39;s deductions, exemptions and liability; and covers certain other matters relating to composite returns. See <a href="http://www.azdor.gov/LinkClick.aspx?fileticket=6OeicHgC5lM%3d&amp;tabid=70&amp;mid=478" target="_blank" title="Ruling 13-2">Ruling 13-2</a> for details.</p><p><strong>Connecticut Changes Business Entity Tax Filings</strong><br />The Connecticut Department of Revenue Services has issued a special notice describing legislative changes to the Connecticut business entity tax, making the tax payable biennially rather than annually. The amount of the tax remains $250. For taxable years commencing on or after Jan. 1, 2013, a business entity will be required to file Form OP-424, Business Entity Tax Return, and pay the business entity tax every other year, rather than every year. Entities will file and pay on or before the 15th day of the fourth month following the close of every other taxable year. The notice contains a chart showing due dates applicable to various taxable years. For example, for taxable years Jan. 1, 2013, through Dec. 31, 2013, and Jan. 1, 2014, through Dec. 31, 2014, the due date would be April 15, 2015. See <a href="http://www.ct.gov/drs/lib/drs/publications/pubssn/2013/sn2013-1.pdf" target="_blank" title="Connecticut Special Notice 2013(1)">Connecticut Special Notice 2013(1)</a> for details.</p><p><strong>Illinois Issues Guidance to Construction Contractors</strong><br />The Illinois Department of Revenue has issued a general information release stating that construction contractors who physically incorporate tangible personal property into real estate owned by exempt organizations or governmental entities that hold tax exempt &quot;E&quot; numbers can purchase such property tax free by providing their suppliers with the certification requirements stated in Ill. Admin. Code &sect; 130.2075(d). Among the required documentation is a copy of a certification from the contractor stating that the purchase is for conversion into real estate under a contract with an exempt organization or governmental entity, identifying the organization or entity by name and address and stating on what date the contract was entered into. Both the &quot;E&quot; number and the certification must be provided to the supplier by the contractor. See <a href="http://tax.illinois.gov/LegalInformation/Letter/rulings/st/2013/ST-13-0012.pdf" target="_blank" title="ST 13-0012-GIL">ST 13-0012-GIL</a> for details.</p><p><strong>Kentucky Issues Guidance on Taxability of Federal Medical Device Excise Tax and Other Charges; Use Tax Notification Rules</strong><br />The Kentucky Department of Revenue has issued a new Sales Tax Facts addressing the treatment of the federal medical device excise tax, credit card surcharges and local restaurant taxes for Kentucky sales and use tax purposes. As part of the federal Patient Protection and Affordable Health Care Act, a new 2.3% medical device excise tax has been imposed on manufacturers and importers based on their sales price of certain medical devices beginning Jan. 1, 2013. Manufacturers and importers may pass this tax on to their customers, and if this charge appears as a line item on a retail transaction, the charge <u>will</u> be subject to the Kentucky sales and use tax if the medical device is otherwise taxable in Kentucky. Credit card surcharges, if passed on to the consumer by the retailer, become part of gross receipts and <u>are</u> subject to Kentucky sales and use tax. Ky. Rev. Stat. Ann. &sect; 91A.400 authorizes fourth- and fifth-class cities to impose a tax up to 3% on restaurant receipts for support of local tourist and convention activity. If the restaurant chooses to pass the tax on to the consumer, any collections are part of gross receipts and <u>are</u>&nbsp;subject to sales tax. Also effective July 1, 2013, out-of- state retailers with no legal requirement to collect tax in Kentucky must notify their Kentucky customers that use tax must be reported and paid to the DOR on applicable purchases. These notifications must be posted on the retailer&#39;s website, on any electronic confirmation order, and on other applicable invoicing documents or the notification can be provided as a supplemental page or by electronic link. See <a href="http://revenue.ky.gov/NR/rdonlyres/FC630FA3-1D7E-455F-81CF-1C33452FB6A8/0/SalesTaxFactsJune2013.pdf" target="_blank" title="June 2013 Sales Tax Facts">June 2013 Sales Tax Facts</a> for details.</p><p><strong>New York Court Upholds Internet Tax</strong><br />The Court of Appeals has rejected the constitutional challenges of Amazon.com and Overstock.com to New York Tax Law &sect; 1101(b)(8)(vi) (the &quot;Internet Tax&quot;) and held that the Internet Tax does not violate the Commerce Clause or the Due Process Clause of the U.S. Constitution. See <a href="http://www.nycourts.gov/ctapps/Decisions/2013/Mar13/33-34opn13-Decision.pdf" target="_blank" title="Dkt. No. 33">Dkt. No. 33</a> for details.</p><p><strong>Texas Rules on Taxability of Broadcast E-mails</strong><br />The Texas Comptroller of Public Accounts has ruled that broadcast e-mail services and e-mail advertisements provided by a real estate television producer are subject to sales tax as telecommunications services. The taxpayer produces real estate television shows for homebuilders, operates a website through which it offers Internet-based services for the homebuilders, and, for an additional and separate fee, provides &quot;hot sheets&quot; (i.e., weekly e-mail advertisements of the builders&#39; homes and residential communities) and &quot;broadcast e-mails&quot; (i.e., advertisements of upcoming events organized by the homebuilders promoting homes for sale and incentives). Texas taxes telecommunications services, which are the electronic or electrical transmission, conveyance, routing or reception of sounds, signals, data or information utilizing wires, cable, radio waves, microwaves, satellites, fiber optics, or any other method now in existence or that may be devised, including but not limited to long-distance telephone service, and does not include the storage of data or information for subsequent retrieval or the processing, or reception and processing, of data or information intended to change its form or content. In this case, the hot sheet and broadcast e-mail services are taxable telecommunications services because the taxpayer is engaged in electronically transmitting information via e-mail transmissions. The customers are not paying for the placement of advertisements, but rather are paying solely for the electronic transmission of information via e-mail and the taxpayer does nothing more than provide the means for electronically transmitting its customers&#39; advertisements. See <a href="http://aixtcp.cpa.state.tx.us/opendocs/open32/201304690h.html" target="_blank" title="Comptroller's Decision 105,515">Comptroller&#39;s Decision 105,515</a> for details.</p><p>For more information, contact <a href="http://www.ksmcpa.com/donna-l-niesen" target="" title="Donna Niesen">Donna Niesen</a> at <a alias="dniesen@ksmcpa.com" conversion="undefined" href="mailto:dniesen@ksmcpa.com" title="dniesen@ksmcpa.com">dniesen@ksmcpa.com</a>.&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Tue, 18 Jun 2013 20:04:00 GMTRepeal of Indiana Inheritance Taxhttp://www.ksmcpa.com/news-blog/repeal-of-indiana-inheritance-tax
<p>The Indiana inheritance tax was recently repealed retroactively for decedents dying on or after Jan. 1, 2013. Even if the decedent&rsquo;s estate is small enough (generally under $5.25 million for decedents dying in 2013) such that no federal estate tax return is required to be filed, it will still be important to value assets as of the date of death for income tax purposes. That is, the estate&rsquo;s/heirs&rsquo; income tax basis will be the fair market value of the assets as of the date of the decedent&rsquo;s death. Further, estate (and perhaps trust) income tax returns will still need to be filed.</p><p>For more information, contact your KSM advisor.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Tue, 21 May 2013 12:45:00 GMTState & Local Tax Update – 2013 Legislative Updatehttp://www.ksmcpa.com/news-blog/state-local-tax-update-2013-legislative-update
<p>Katz, Sapper &amp; Miller&rsquo;s State &amp; Local Tax Practice has released its <a href="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/1caf592d-4f0c-4fb0-9a94-310e4784b21a/2013-indiana-legislative-update.pdf" target="_blank">2013 Legislative Update</a>, which provides a summary of the tax and economic development legislation that the Indiana General Assembly passed and that Governor Pence signed into law in 2013.</p><p>The update covers changes in areas such as sales tax, income tax, property tax, economic development and tax credits, and others. For more information on how a specific law change may affect your business, please contact the members of our State &amp; Local Tax Practice listed in this publication.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Thu, 16 May 2013 12:55:00 GMTHealth Care Act Affects DVMshttp://www.ksmcpa.com/news-blog/health-care-act-affects-dvms
<p>In December 2012, the Internal Revenue Service issued proposed regulations to expand upon the Patient Protection and Affordable Care Act of 2010 (&quot;Health Care Act&quot;). One of the provisions of the Health Care Act is Code Section 1411, Unearned Income Medicare Contribution Tax. The result of the new law and proposed regulations may have an effect on veterinary practice owners, as they may have an additional tax liability, depending on their income.</p><p>Effective Jan. 1, 2013, certain individuals, trusts, and estates will be required to pay a 3.8% Medicare tax on their share of net investment income. Net investment income includes interest, dividends, royalties, annuities, capital gains, rents, and passive trade or business activities.</p><p>The additional Medicare tax will be imposed on individuals, trusts and estates with modified adjusted gross income in excess of the following income amounts:</p><ul><li>Married Filing Joint or Surviving Spouse - $250,000</li><li>Married Filing Separate - $125,000</li><li>Single and Head of Household - $200,000</li><li>Trusts and Estates - $11,950 - projected for 2013</li></ul><p>The tax will be calculated on the lessor of the net investment income or total modified adjusted gross income in excess of the threshold amounts listed above.</p><p><strong>How will the proposed regulations specifically apply to veterinary practice owners? </strong></p><p>If an individual owner has modified adjusted gross income (income from all sources) in excess of the limits listed above, then his/her net investment income will be subject to the 3.8% Medicare tax. As per the proposed regulations, investment income <em>will </em>include rental property owned personally by a DVM and rented to a veterinary practice in which the DVM materially participates.</p><p>According to Treasury Regulation 1.469-2(f) (6), properties in these scenarios are treated as &quot;self-rentals&quot; and the associated net income has been classified as non-passive for income tax purposes. Notwithstanding these PAL re-characterization rules, the proposed regulations treat &quot;self-rental&quot; income that is not earned in the ordinary course of a real estate trade or business as passive income for this purpose. Unless there is revised guidance received from the IRS, it is expected that most of these arrangements will be subject to the 3.8% Unearned Income Medicare Tax.</p><p><span style="background-color:#e0e0e0;">The Unearned Medicare Income Tax has not only created a new tax to learn and understand, but also new planning opportunities. Katz, Sapper &amp; Miller&#39;s&nbsp;</span><a href="http://www.ksmcpa.com/veterinary" target="" title="Veterinary Services Group"><span style="background-color:#e0e0e0;">Veterinary Services Group</span></a><span style="background-color:#e0e0e0;">&nbsp;is committed to increasing &quot;after tax&quot; profitability for owners. Please contact&nbsp;</span><a href="http://www.ksmcpa.com/terence-m-o-neil" target="" title="Terry O'Neil"><span style="background-color:#e0e0e0;">Terry O&#39;Neil</span></a><span style="background-color:#e0e0e0;">&nbsp;for further information regarding opportunities to mitigate the burden the 3.8% Medicare tax may place on your personal profitability.</span></p><p>If you currently own the hospital building in a separate entity that leases the facility to the veterinary hospital operations company, we suggest you review the taxable income that is generated from its operations and your personal tax situation to determine if you will be subject to this new tax.</p><p>Additionally, we suggest you review the lease terms to determine that fair market rent is being charged and an arm&#39;s length lease agreement is in place.</p><p>We are awaiting the final regulations and will keep you informed as we learn more.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Fri, 10 May 2013 14:56:00 GMTExpert's Evidence Is Key to Reversing a Zero Damages Verdicthttp://www.ksmcpa.com/news-blog/expert-s-evidence-is-key-to-reversing-a-zero-damages-verdict
<p><strong><em>Heritage Operating, LP v. Rhine Bros. LLC,</em></strong><strong> 2012 Tex. App. LEXIS 4939 (June 21, 2012)</strong></p><p>During the sale of their well-established propane business - including 10 locations in Texas and across the South - all but one of the owners decided to stay with the company under new management. The one retiring owner signed a noncompete agreement (as did the others), which prohibited him from engaging in a propane business for 10 years beyond the date of sale (2003) and within a 75-mile radius of the company&#39;s Texas location. The buyer agreed to pay the owner $500,000 for the noncompete agreement, paid out over five years; their contract also stipulated that $7 million of the $15.5 million purchase price was for the goodwill and other intangible assets of the firm, including its customers and pricing lists. <a href="http://www.ksmcpa.com/documents/litigation-services-bulletin-spring-2013.pdf" target="_blank" title="Read more ">Read more </a></p><p><a href="http://www.ksmcpa.com/documents/litigation-services-bulletin-spring-2013.pdf" target="_blank">Read the full text of the <em>Litigation Services Bulletin</em></a>.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Fri, 19 Apr 2013 18:45:00 GMTState & Local Tax Update - 4/19/13http://www.ksmcpa.com/news-blog/state-local-tax-update-4-19-13
<p><strong>Property Tax Alert &ndash; Indiana</strong></p><p><strong>Amended Form 11s issued by Marion County</strong>: In December 2012, Marion County issued its Notices of Assessment (Form 11s) to all real property taxpayers. The Form 11 establishes the value for the 2012 property taxes payable in 2013. After the original notices were issued, Marion County reevaluated its calculations, resulting in amended notices for many taxpayers. After the reevaluation, some assessed values have increased as much as $10 million from the original notice received. The amended Form 11s were mailed by the county at the beginning of April, and <strong>the deadline to appeal the resulting new assessed value is May 13, 2013.</strong><br /><br />Additionally, due to the upcoming payment due date of May 10, many counties have begun to mail their property tax bills. Upon receipt of your tax bill, it is recommended that you compare it to the Form 11 you have received to confirm that the correct assessed value was used to compute the tax liability. Additionally, KSM recommends that you confirm that all exemptions are on file (residential) or applicable deductions are taken (commercial) when calculating the tax liability. All taxpayers should also confirm that their property is receiving the appropriate property tax cap.</p><p>For any commercial property owner needing assistance with either matter, please feel free to contact KSM&rsquo;s property tax practice leader <a href="http://www.ksmcpa.com/chad-m-miller" target="" title="Chad Miller">Chad Miller</a> or your KSM representative.</p><div style="border-top: 1px solid #ccc; margin: 10px 0 6px;">&nbsp;</div><p><strong>Indiana Tax Court Rules on Net Operating Losses (NOL) Computation</strong><br />The Indiana Tax Court has ruled that a corporation&#39;s foreign source dividends are deductible in calculating its Indiana net operating losses, including those available for carryover as a deduction from taxable income in future years. The taxpayer is a Delaware corporation that manufactures construction and mining equipment worldwide, including a manufacturing plant in Lafayette, Ind., and took a foreign source dividend deduction and reported the NOLs on a separate company basis in each of its loss years for Indiana income tax purposes. Indiana law provides that an Indiana NOL equals the federal NOL for a taxable year derived from sources within Indiana and adjusted for specified and required modifications, and a corporation that includes any Foreign Source Dividends (FSD) in its Indiana adjusted gross income for a taxable year is entitled to a deduction from that adjusted gross income. Therefore, the taxpayer&#39;s FSDs are deductible in calculating its Indiana NOLs because &ldquo;adjusted gross income&rdquo; is a component of the Indiana NOL provisions and the taxpayer&#39;s FSD income is included in that adjusted gross income. Further, legislative intent shows that the Indiana FSD provisions are to apply whenever FSD income is included in Indiana adjusted gross income even when calculating Indiana NOLs. See <em><a href="http://www.in.gov/judiciary/opinions/pdf/03281301mbw.pdf" target="_blank" title="Caterpillar, Inc. v Indiana Department of State Revenue">Caterpillar, Inc. v Indiana Department of State Revenue</a></em> for more information.</p><p><strong>Indiana Rules on Taxability of Digital Items</strong><br />A taxpayer&#39;s sales of authentication services, including the provision of a digital certificate to its customers, were not subject to the sales and use tax. The taxpayer is a provider of authentication solutions that allow for businesses and individuals to perform secure electronic commerce and communications over the internet. Among the solutions are the provision of a digital certificate and authentication and resolution services, which are provided on a subscription basis. The Indiana Department of State Revenue determined that the digital certificates were neither specified digital products subject to the sales and use tax, nor were they considered to be computer software because the digital certificates did not represent a set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task. Accordingly, the sales of the authentication services were not subject to tax. See <a href="http://www.in.gov/legislative/iac/20130327-IR-045130117NRA.xml.html" target="_blank" title="Ruling ST 12-04">Ruling ST 12-04</a> for more information.</p><p><strong>Multistate Tax Commission Discusses Proposed Compact Amendments</strong><br />The Multistate Tax Commission has proposed several amendments to Article IV of the Multistate Tax Compact. Recognizing the impact that changes in the economy and state tax policy have had on the relevance of the compact and in an effort to promote increased uniformity among state tax systems, the commission has recommended changes to sections of the compact dealing with the apportionment of business income. The proposed amendments are the product of a multi-year effort on the part of the commission and are focused on five key areas: sales factor sourcing of intangibles, the definition of &quot;sales,&quot; factor weighting, the definition of &quot;business income,&quot; and distortion relief.</p><p><strong>California Moves to Single Sales Factor</strong><br />An &ldquo;apportioning trade or business,&rdquo; which includes a nonresident&#39;s business, trade or profession that carries on within and out of California, is now required to apportion business income using the single sales factor. Proposition 39, which added Cal. Rev. &amp; Tax. Cd. &sect; 25128.7 for taxable years beginning on or after Jan. 1, 2013, requires &ldquo;all business income of an apportioning trade or business shall be apportioned to this state by multiplying the business income by the sales factor.&rdquo; California Regulation Sections 17951 through 17954 requires such businesses to source such business income in accordance with the provisions of the corporate apportionment rules. This means, according to the Franchise Tax Board, &ldquo;an apportioning trade or business&rdquo; regardless of the form of ownership, (e.g., sole proprietorship, partnership, limited liability company, or corporation), that carries on within and out of California is required to apportion the nonresident&#39;s business income using the single sales factor. See <a href="http://www.ftb.ca.gov/professionals/taxnews/2013/April/bigbusiness.shtml" target="_blank" title="April Tax News">April Tax News</a> for more information.</p><p><strong>Idaho Adjusts NOL Carryback Rules</strong><br />Effective retroactive to Jan. 1, 2013, the Idaho two-year carryback provisions allowed for unused net operating loss amounts for NOLs for tax years starting on or after Jan. 1, 2013, are applicable only if an amended return carrying the loss back is filed within one year of the end of the tax year of the NOL that results in the carryback. Also, the provisions governing the Idaho 20-year carryforward allowed for such unused NOL amounts no longer require taxpayers to check a separate state election box on the taxpayer&#39;s Idaho tax return to take that carryforward. See <a href="http://www.legislature.idaho.gov/legislation/2013/H0184.pdf" target="_blank" title="HB 184">HB 184</a> for more information.</p><p><strong>Illinois Rules on Rolling Stock Exemption</strong><br />The Illinois Department of Revenue has released a general information letter stating that diesel exhaust fluid, which is injected into the exhaust gas of diesel motors to reduce emissions, does not qualify for the rolling stock exemption because it does not become a physical component of the qualifying rolling stock and is therefore a consumable that is subject to tax. Under Ill. Admin. Code 86 &sect; 130.340, items such as oil, grease, belts and lights qualify for the rolling stock exemption because they become a physical component part of the qualifying rolling stock, but items such as fuel, paint supplies and cleaners do not qualify because they do not become a component part of such vehicle and therefore do not participate directly in some way with the transportation process. See <a href="http://tax.illinois.gov/LegalInformation/Letter/rulings/st/2013/ST-13-0002.pdf" target="_blank" title="ST 13-0002-GIL">ST 13-0002-GIL</a> for more information.</p><p><strong>Kentucky Imposes Use Tax Notification Requirement on Out-of-State Sellers</strong><br />Effective July 1, 2013, every retailer making sales of tangible personal property or digital property from outside Kentucky for storage, use or consumption in Kentucky, who is not required to collect Kentucky use tax, must notify the purchaser that he or she is required to report and pay the Kentucky use tax directly to the Department of Revenue on purchases from that retailer unless the purchases are otherwise exempt. The required notification must be readily visible and be included on the retailer&#39;s Internet website, retail catalog and on invoices provided to the purchaser. The law specifies the exact language that must be used. Any retailer that made total gross sales of less than $100,000 to Kentucky residents or businesses located in Kentucky and that reasonably expects that its Kentucky sales in the current calendar year will be less than $100,000 is exempt from the notification requirement. See <a href="http://www.lrc.ky.gov/record/13RS/HB440.htm" target="_blank" title="HB 440">HB 440</a> for more information.</p><p>For more information, contact <a href="http://www.ksmcpa.com/donna-l-niesen" target="" title="Donna Niesen">Donna Niesen</a> at <a href="mailto:dniesen@ksmcpa.com" title="dniesen@ksmcpa.com">dniesen@ksmcpa.com</a>.&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Fri, 19 Apr 2013 17:39:00 GMTStandards Updates - 4/18/13http://www.ksmcpa.com/news-blog/standards-updates-4-18-13
<ul><li><a name="top"></a><a href="#One" target="">Proposed Accounting Standards Update on Discontinued Operations</a><br />&nbsp;</li><li><a href="#Two" target="">Update on the FASB Lease Proposal</a></li></ul><div style="margin: 0px; border-top: #cccccc 1px solid">&nbsp;</div><p><a name="One"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a><strong>Proposed Accounting Standards Update on Discontinued Operations</strong></p><p>In April 2013, the Financial Accounting Standards Board (FASB) issued a proposed accounting standards update (ASU), <a href="http://www.fasb.org/cs/ContentServer?c=Document_C&amp;pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176162331359" target="_blank"><em>Presentation of Financial Statements (Topic 205): Reporting Discontinued Operations</em></a>, for public comment. The amendments in the proposed update will address a common complaint that too many disposals of assets currently require discontinued operations presentation in the financial statements. Current discontinued operations reporting guidelines can result in financial statements that are not useful to users of the financial statements and can be more difficult to prepare.</p><p>Currently, a component of an entity should be classified as a discontinued operation if: 1) it has been disposed of or is held for sale, 2) the operations and cash flows of the component have been or will be eliminated from the ongoing operations of the entity because of the disposal, and 3) the entity will not have significant continuing involvement in the operations of the component after the disposal.</p><p>Under the proposed amendments, a component of an entity would only be treated as a discontinued operation if: 1) it has been disposed of or is held for sale, and 2) it is part of a single coordinated plan to dispose of a separate major line of business or separate major geographical area of operations.</p><p>Disposals of equity method investments that meet the above definition of a discontinued operation would be eligible for discontinued operations presentation. Also, the requirement that the operations and cash flows of the component have been or will be eliminated from the ongoing operations of the entity because of the disposal, and the entity will not have significant continuing involvement in the operations of the component after the disposal, would be eliminated by the amendments.</p><p>The proposed amendments would require additional disclosures about discontinued operations including the major income and expense items, major classes of cash flows, a reconciliation of the major classes of assets and liabilities held for sale that are disclosed in the financial statements to what is presented on the balance sheet, and a reconciliation of the major income and expense items that are disclosed in the notes to the financial statements to the after-tax profit or loss from the discontinued operation on the income statement. The proposed amendments will also require disclosures related to the disposal of an individually material component of an entity that does not qualify for discontinued operations presentation. Also proposed are expanded disclosures about an entity&rsquo;s continuing involvement with a discontinued operation including the amount of cash inflows and outflows from and to the discontinued operation and disclosures about a discontinued operation in which an entity retains an equity method investment after the disposal.</p><p>The effective date of the proposed amendments will be determined after the FASB considers the feedback received. The proposed amendments will be applied prospectively and earlier adoption will be permitted. Comments on this proposed ASU are due by Aug. 30, 2013.</p><div style="margin: 0px; border-top: #cccccc 1px solid">&nbsp;</div><p><a name="Two"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a><strong>Update on the FASB Lease Proposal&nbsp;</strong><strong>&nbsp;</strong></p><p>The FASB has announced that it will release for public comment in May 2013 a re-exposure on the proposed ASU on the financial reporting for leases. The lease proposal will be converged with the International Accounting Standards Board exposure draft that is expected to be released in June 2013.</p><p>The lease proposal will require that all leases be recorded on the balance sheet of lessees. On the income statement, expenses would be recognized depending on whether significant consumption of the asset occurs during the lease. Leases where the asset depreciates significantly during the lease term (equipment and vehicles, for example) would be accounted for differently than assets that do not depreciate or increase in value (land and buildings, for example). Leases for assets with significant consumption of the asset would be expensed through amortization of the asset and interest expense on the lease liability. The expense would generally decrease over the term of the lease resulting in front-loaded expenses. For leases of assets without significant consumption of the asset, the lease payments would be expensed on a straight-line basis over the lease term.</p><p>The re-exposure of the proposed ASU on leases is expected to be out for comment for a 120-day period. For a full status update on the proposal, refer to the <a href="http://www.fasb.org/cs/ContentServer?c=FASBContent_C&amp;pagename=FASB%2FFASBContent_C%2FProjectUpdatePage&amp;cid=900000011123" target="_blank">FASB website</a>.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Thu, 18 Apr 2013 19:44:00 GMTBusiness Personal Property Tax Auditshttp://www.ksmcpa.com/news-blog/business-personal-property-tax-audits
<p>Many Indiana counties have contracted with a third-party vendor to perform business personal property tax audits on their behalf. Since these contracts went into place, Katz, Sapper &amp; Miller (KSM) has seen a significant spike in personal property tax audits. These spikes have been especially large for our clients located in Marion, Hamilton and Allen counties.</p><p>A typical business personal property tax audit covers three years and can result in additional tax, penalty and interest. Because these audits are performed on a contingency basis, the auditing firms are paid based on the amount in new taxes assessed and collected. According to the website of one vendor, it has audited 27,685 returns and identified over $1 billion in errors.</p><p>Again, this tax alert concerns personal property used in a <strong><em>trade or business</em></strong> only, not property held and used by individuals.</p><p>If your business receives a notice of personal property tax audit from a county or third-party auditor, KSM can assist you in managing the audit process and work to minimize a potential assessment. Please feel free to contact your KSM advisor, our property tax leader, <a href="http://www.ksmcpa.com/chad-m-miller" target="" title="Chad Miller">Chad Miller</a>, or state and local tax manager, <a href="http://www.ksmcpa.com/heather-judy" target="" title="Heather Judy">Heather Judy</a>, if you need assistance.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Mon, 25 Mar 2013 18:08:00 GMTStandards Updates - 3/18/13http://www.ksmcpa.com/news-blog/standards-updates-3-18-13
<ul><li><a name="top"></a><a href="#One" target="">FASB and IASB Reach Tentative Decisions on Revenue Recognition Proposal</a><br />&nbsp;</li><li><a href="#Two" target="">FASB Issues Proposed Guidance on Financial Assets and Liabilities</a><br />&nbsp;</li><li><a href="#Three" target="">FASB Issues ASU 2013-05</a></li></ul><div style="margin: 0px; border-top: #cccccc 1px solid">&nbsp;</div><p><a name="One"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a><strong>FASB and IASB Reach Tentative Decisions on Revenue Recognition Proposal</strong></p><p>Revenue is a key number for users of financial statements in assessing an entity&rsquo;s financial performance. As part of the ongoing Financial Accounting Standards Board (FASB) and International Accounting Standards Board&rsquo;s (IASB) (the Boards) joint projects, they continue to discuss revenue recognition. This has been one of their key projects, and one that has been ongoing for a number of years. The first Discussion Paper on this topic was released in December 2008. The Boards&rsquo; main objectives were to develop more consistent requirements, improve comparability, and provide more useful information to users of financial statements.</p><p>The Boards have recently reached tentative decisions on the revenue recognition disclosure issues related to the following:</p><ol><li>Disaggregation of revenue</li><li>Reconciliation of contract balances</li><li>Remaining performance obligations</li><li>Assets recognized from the costs to obtain or fulfill a contract with a customer</li><li>Onerous performance obligations</li><li>Qualitative information about performance obligations and significant judgments</li></ol><p>The Boards also reached tentative decisions on transition, effective date and early application. The tentative transition guidance would allow an entity to apply the new revenue standard retrospectively with optional enhanced practical expedients. An entity would also be allowed to elect an alternative transition method that would require:</p><ol><li>Applying the new revenue standard only to contracts that have not been completed under old standards;</li><li>Recognizing the cumulative effect of initially applying the new standard to the opening balance of retained earnings; and</li><li>Providing additional disclosures related to the amount by which each financial statement line item is impacted and explanation of the significant changes in reported results under the new standard.</li></ol><p>The revenue recognition guidance would be effective for annual periods beginning on or after Jan. 1, 2017. Early application would not be permitted.</p><p>The Boards noted that the period of time from the expected issuance of the standard until its effective date is longer than usual due to the unique attributes of the revenue recognition project, including the scope of entities that will be affected and the potentially significant effect that a change in revenue recognition has on other financial statement line items.</p><p>The Boards have completed their substantive redeliberations of the 2011 exposure draft. The FASB staff has begun drafting the final revenue recognition standard, with final release expected in the second quarter of 2013. See the <a href="http://www.fasb.org/cs/ContentServer?c=FASBContent_C&amp;pagename=FASB%2FFASBContent_C%2FProjectUpdatePage&amp;cid=900000011146" target="_blank">FASB website</a> for a complete update on the revenue recognition project.</p><div style="margin: 0px; border-top: #cccccc 1px solid">&nbsp;</div><p><a name="Two"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a><strong>FASB Issues Proposed Guidance on Financial Assets and Liabilities&nbsp;</strong><strong>&nbsp;</strong></p><p>The FASB has issued a proposed Accounting Standards Update (ASU), <a href="http://www.fasb.org/cs/ContentServer?c=Document_C&amp;pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176160958278" target="_blank"><em>Financial Instruments &ndash; Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities</em></a>. The proposed ASU is part of the joint projects with the IASB to converge the accounting for financial instruments, and to provide a comprehensive measurement framework for classifying and measuring financial instruments.</p><p>As described below, the proposed accounting standard would measure financial assets based on how a reporting entity would realize value from them as part of distinct business activities, while the measurement of financial liabilities would be consistent with how the entity expects to settle those liabilities.</p><p>Financial assets would be classified into one of three categories:</p><ol><li>Amortized cost;</li><li>Fair value through other comprehensive income (OCI); or</li><li>Fair value through net income.</li></ol><p>Equity investments (except those accounted for under the equity method of accounting) would be measured at fair value with changes in fair value recognized in net income. A &ldquo;practicability exception&rdquo; to measurement at fair value would be provided for equity investments without fair values that can be readily determined.</p><p>Financial liabilities would generally be required to be carried at cost unless: 1) the reporting organization&rsquo;s business strategy is to transact at fair value, or 2) the obligation results from a short sale.</p><p>Public companies would be required to disclose fair values parenthetically on the face of the balance sheet for financial assets and financial liabilities measured at amortized cost, with exceptions for demand deposit liabilities and receivables and payables due in less than a year. Nonpublic entities would not be required to disclose this fair value information parenthetically or in the notes. Comments on the proposal are due by May 15, 2013.</p><div style="margin: 0px; border-top: #cccccc 1px solid">&nbsp;</div><p><a name="Three"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a><strong>FASB Issues ASU 2013-05</strong><strong>&nbsp;</strong></p><p>The FASB has issued Accounting Standards Update <a href="http://www.fasb.org/cs/ContentServer?c=Document_C&amp;pagename=FASB%2FDocument_C%2FDocumentPage&amp;cid=1176162203697" target="_blank">(ASU) No. 2013-05</a>, <em>Foreign Currency Matters (Topic 830) Parent&rsquo;s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity</em>.</p><p>When a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or business within a foreign entity, the parent is required to apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income. The cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided.</p><p>For an equity method investment that is a foreign entity, the partial sale guidance in Section 830-30-40 still applies. As such, a pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of such an equity method investment. This treatment does not apply to an equity method investment that is not a foreign entity. In those instances, the cumulative translation adjustment is released into net income only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment.</p><p>The ASU also provides clarification as to what events comprise a sale of an investment in a foreign entity.</p><p>For public entities, the amendments in this ASU are effective prospectively for fiscal years beginning after Dec. 15, 2013. For nonpublic entities the amendments in this ASU are effective prospectively for the first annual period beginning after Dec. 15, 2014, and interim and annual periods thereafter. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. Early adoption is permitted.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Mon, 18 Mar 2013 19:49:00 GMTState & Local Tax Update - 3/18/13http://www.ksmcpa.com/news-blog/state-local-tax-update-3-18-13
<p><strong>Personal Property Tax Audits</strong><br />Many Indiana counties have contracted with a third-party vendor to perform personal property tax audits on their behalf. Since these contracts went into place, Katz, Sapper &amp; Miller has seen a significant spike in personal property tax audits. These spikes have been especially large for our clients located in Marion, Hamilton and Allen counties.</p><p>A typical personal property tax audit covers three years and can result in additional tax, penalty and interest. Because these audits are performed on a contingency basis, the auditing firms are paid based on the amount in new taxes assessed and collected. According to the website of one vendor, it has audited 27,685 returns and identified over $1 billion in errors.<br /><br />If you receive a notice of personal property tax audit from a county or its third-party auditor and would like assistance with the audit, contact Katz, Sapper &amp; Miller&#39;s property tax leader, <a href="http://www.ksmcpa.com/chad-m-miller" target="" title="Chad Miller">Chad Miller</a>, or state and local tax manager, <a href="http://www.ksmcpa.com/heather-judy" target="" title="Heather Judy">Heather Judy</a>. We would be happy to assist you through this process.</p><div style="border-top: 1px solid #ccc; margin: 10px 0 6px;">&nbsp;</div><p><strong>Proposed Federal Legislation on Sales Tax and Remote Seller Collection Responsibilities</strong><br />The Marketplace Fairness Act of 2013, which was introduced in the U.S. House of Representatives and the U.S. Senate on Feb. 14, 2013, would allow states the option to require the collection of sales and use taxes owed under state law by remote sellers, rather than rely on consumers to remit use taxes to the state, if the remote seller has gross annual receipts in total remote sales in the United States for the preceding calendar year of more than $1 million. The state would be required to implement minimum simplification requirements. Currently the bill has been referred to the House Committee on the Judiciary (see <a href="http://beta.congress.gov/113/bills/hr684/113hr684ih_xml.xml" target="_blank" title="H.R. 684">H.R. 684</a> and S. 336).</p><p><strong>Indiana Rules on Sales Tax Nexus</strong><br />An out-of-state retail merchant&#39;s deliveries of merchandise to its customers in Indiana established nexus with the state; therefore, the retailer was subject to sales tax on the merchandise delivered within the state. A vendor must have substantial nexus with a state in order for it to be subject to state-imposed duties to collect sales and use taxes. A vendor whose only contacts with the taxing state are by mail or common carrier lacks substantial nexus. In this instance, the retailer did not use a common carrier; rather, it delivered merchandise to its customers in Indiana in its own conveyance. Therefore, it created sales tax nexus. For more information, see <a href="http://www.in.gov/legislative/iac/20130227-IR-045130063NRA.xml.pdf" target="_blank" title="LOF 04-20120449">LOF 04-20120449</a>.</p><p><strong>Ohio Issues Guidance on CAT Compliance</strong><br />The Ohio Department of Taxation reminds calendar quarter taxpayers of recent changes to the application of the annual $1 million exclusion. Previously, a calendar quarter taxpayer would exclude $250,000 on each of the four quarterly returns in the calendar year, and any unused exclusion amount could be carried forward for three calendar quarters. However, for tax periods beginning on Jan. 1, 2013 and thereafter, a taxpayer who pays on a quarterly basis excludes the first $1 million of taxable gross receipts on the first quarter return and carries forward any unused portion of the exclusion amount to subsequent quarters within the same calendar year. Unused amounts from calendar year 2012 may not be carried forward into calendar year 2013. For more information, see <a href="http://www.tax.ohio.gov/commercial_activities/information_releases/index_cat/cat_2013_01.aspx" target="_blank" title="Ohio Tax Information Release CAT 2013-01">Ohio Tax Information Release CAT 2013-01</a>.</p><p><strong>New Mexico Rules on Taxability of Subscription Sales of Web-Based Tools</strong><br />An out-of-state data provider that sells a license to its customers so that they can access data and software online in New Mexico is subject to gross receipts tax. For gross receipts tax purposes, the location of the license is the place where it will be normally used. Each customer can be expected to use the license at the location where the customer&#39;s Internet access exists. In the absence of any evidence to the contrary, the location of a license is presumed to be the customer&#39;s business location. If the business location is in New Mexico then the location of the license is also in New Mexico. Because the taxpayer is selling a license to use in New Mexico, which is a form of intangible property, the taxpayer is engaging in business in New Mexico and may not deduct the sale of intangible property (license) to government entities or to an educational institution. The taxpayer&#39;s receipts from sales of a license to government entities or Code Sec. 501(c)(3) educational organizations in New Mexico are subject to gross receipts tax. However, the taxpayer&#39;s receipt from performing consulting and analyst services outside of New Mexico are exempt and it is irrelevant whether the taxpayer&#39;s customers are government entities or educational institutions. For more information, see <a href="http://www.tax.newmexico.gov/Rulings%20Document%20Library/401-13-01.pdf" target="_blank" title="Ruling 401-13-1">Ruling 401-13-1</a>.</p><p><strong>Virginia Rules on Vendor Responsibilities When Accepting Exemption Certificates</strong><br />The Virginia Department of Revenue determined that a purchase of tangible personal property by an organization paid for directly from the organization&#39;s funds is an exempt purchase and acceptance of an exemption certificate in good faith requires the dealer to examine the certificate for compliance. The taxpayer sells tangible personal property to exempt organizations and requests clarification on payment methods of purchasers and when an exemption certificate can be accepted in good faith. The Department noted that a seller must use reasonable care and judgment when selling tangible personal property even when an exemption certificate is on file and that acceptance in good faith requires the dealer to examine the certificate for compliance before a tax-free sale occurs. The Department further noted that once a seller certifies that the purchase qualifies for an exemption from Virginia retail sales and use tax, purchases by an exempt organization that are billed and paid for by the organization&#39;s check or credit card are exempt. Va. Code Ann. &sect; 58.1-609.11 provides that a nonprofit organization retains its exemption until the current exemption expires. Additionally, exemptions provided for tangible personal property used or consumed by the government must be accompanied by an official government purchase order or a valid government exemption certificate. Once such a certificate is provided the taxpayer is not required to receive an official purchase order each time an exempt sale is made to a government agency. The Department clarified that if an employee of an exempt organization uses their own funds expecting to be reimbursed by the exempt organization for payment of purchases, then such purchases are subject to tax. For more information, see <a href="http://www.policylibrary.tax.virginia.gov/OTP/policy.nsf/b4013b39032881238525697b00598b51/90e2cb6882049bbc85257b0c004e696b" target="_blank" title="Virginia Public Document Ruling 13-9">Virginia Public Document Ruling 13-9</a>.</p><p><strong>Washington Issues Guidance on Digital Products</strong><br />The Washington Department of Revenue has amended and issued new rules to explain the impact of 2009 and 2010 legislation that imposed sales and use tax on digital products. WAC 458-20-15501 has been amended and provides rules regarding the taxation of the wholesale sale, retail sale, and manufacturing of computer systems and computer hardware, as well as the taxation of other activities associated with computer hardware, including installation, repair, and maintenance. The Department has adopted new rule, WAC 458-20-15502, which addresses the taxation of computer software, exemptions, site licenses of prewritten software, keys to activate software, royalties for licensing of software, and other activities associated with software, including customizing prewritten computer software; installation and uninstallation; repair, alteration, and modification of software; and software maintenance agreements. The Department has also adopted new rule, WAC 458-20-15503, which provides a structured approach for determining tax liability for digital products and digital codes. Finally, WAC 458-20-155 is repealed. The new and amended rules become effective on March 28, 2013.</p><p>For more information, contact <a href="http://www.ksmcpa.com/donna-l-niesen" target="" title="Donna Niesen">Donna Niesen</a> at <a href="mailto:dniesen@ksmcpa.com" title="dniesen@ksmcpa.com">dniesen@ksmcpa.com</a>.&nbsp;</p>cdjonlich@ksmcpa.com (Chris Djonlich)Mon, 18 Mar 2013 19:25:00 GMTEconomic development deals need to benefit all sideshttp://www.ksmcpa.com/news-blog/economic-development-deals-need-to-benefit-all-sides
<p><em>This editorial piece by <a href="http://www.ksmcpa.com/tim-c-cook" >Tim Cook</a> ran in the March 2, 2013, issue of the <a href="http://www.ibj.com/" target="_blank">Indianapolis Business Journal</a>.</em></p><p>In a time when state and local officials make economic development announcements every day, an increasingly common question is, &ldquo;How does this benefit me?&rdquo;</p><p>For the company receiving incentives, that answer is easy enough; whether it be tax credits or a training grant, they receive some form of financial support. But, what about state and local government, and the public at large&mdash;what&rsquo;s in it for them?</p><p>As this question comes up more and more, state and local governments have sought to better quantify the benefits of these deals and portray this benefit to the public. This evolution is a good thing for everyone affected by the process.</p><p>Some benefits are easy to quantify. Each job created can be counted. Everyone agrees that the creation of jobs benefits the economy. And for each job created, a certain amount in state and local income tax will be generated.</p><p>When a company buys equipment, it will pay state sales tax. There will also be property tax expense on the company&rsquo;s real estate, regardless of whether it leases or owns the building.</p><p>These taxes add up to a total amount that can be tangibly identified.</p><p>Beyond the simple adding and subtracting of tax benefits, state and local governments are able to estimate payoff on economic development projects in a more macro fashion. They do this in a lot of ways.</p><p>Many communities subscribe to software programs that estimate total economic impact of these projects, or they may pay a third-party economist to do the analysis.</p><p>These resources project spending, jobs, tax dollars and other positive economic impacts that a new project will support and create.</p><p>Some localities have begun to ask more specific questions about where current and future employees reside, as this affects local income taxes allocated to communities.</p><p>Some units of government take it a step further, actually seeking to tie incentives to the local income tax the company withholds from employees, similar to what the state has done with its job creation tax credit for many years to ensure the incentives are performance-based and self-policing.</p><p>Other benefits may include a project&rsquo;s serving as an impetus to a dormant redevelopment area, or expanding a community&rsquo;s or state&rsquo;s penetration within a particular industry. Some projects also may have a multiplier effect, serving as anchors or attracting suppliers and related businesses within a given proximity.</p><p>Then there is the question of civic involvement by the company. Companies often will be asked how they intend to interact with and give back to the community at large. More and more, localities are seeking specific commitments, whether participating in the United Way, joining the local chamber of commerce or sponsoring a summer internship program through a local community college.</p><p>These softer forms of public-private partnerships can be dismissed as too touchy-feely, but the fact is that such involvement can be vitally important for the long-term good of a community and its efforts to promote a better quality of life.</p><p>A prime example of this was the fundraising initiative by area businesses to land the 2012 Super Bowl. The corporate philanthropic spirit that intervened to support this effort was rooted in a public-private partnership model that includes groundwork laid by a strong economic development infrastructure.</p><p>By fostering this sense of civic readiness in companies, whether it be in recognition of economic development support for a project or just general interaction with like-minded businesses, central Indiana strengthens its foundation for similar future successes.</p><p>In recent years, some economic development deals have become more complex, employing less-often-used incentives like tax increment finance and similar bond devices. As a deal increases in complexity, the level of scrutiny increases with it, and that, too, is a good thing.</p><p>These tools will continue to play a positive role in the economy only if they consistently produce winning projects and provide reliable security to state and local government for the incentives they employ.</p><p>Economic development deals need to pay for themselves as well as provide the opportunity for greater benefits to come. The better job that company officials and officeholders do in educating the public about the return on investment potential of these deals, the more equipped the public will be to appreciate the need to promote support for economic development projects in their communities.</p><p><em><a href="http://www.ksmcpa.com/tim-c-cook" >Tim Cook</a> is the partner in charge of Katz Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/state-local-tax" >State and Local Tax Practice</a>. Views expressed here are the author&rsquo;s.</em></p>jcody@ksmcpa.com (Jenina Cody)Wed, 06 Mar 2013 13:17:00 GMT5th Circuit Ratifies 47.5 Percent Discounts to FLP Asset Valueshttp://www.ksmcpa.com/news-blog/5th-circuit-ratifies-47-5-percent-discounts-to-flp-asset-values
<p><span style="color: rgb(80, 80, 80); font-size: 14px; line-height: 19px;">Business appraisers and tax specialists may recall the 2009 decision by the federal district court in which a wealthy Texas widow, with the help of longtime advisors, formed a family limited partnership (FLP), but then failed to completely fund it with $250 million in corporate bonds before her death. She also filled out, but ultimately did not sign, the check intended to capitalize the general partner (GP).&nbsp;</span><a href="http://www.ksmcpa.com/documents/valuation-services-bulletin_winter-2013.pdf" style="font-size: 14px; line-height: 19px; color: rgb(0, 101, 189); text-decoration: none;" target="_blank">Read more</a></p><div style="color: rgb(80, 80, 80); font-size: 14px; line-height: 19px;"><a href="http://www.ksmcpa.com/documents/valuation-services-bulletin_winter-2013.pdf" style="color: rgb(0, 101, 189); text-decoration: none;" target="_blank">Read the full text of the&nbsp;Valuation Services Group Bulletin</a>.</div>cdjonlich@ksmcpa.com (Chris Djonlich)Tue, 05 Mar 2013 21:51:00 GMTQualifying for the Automatic Taxpayer Refund Credithttp://www.ksmcpa.com/news-blog/qualifying-for-the-automatic-taxpayer-refund-credit
<p>The Indiana General Assembly has passed legislation providing for an Automatic Taxpayer Refund (ATR) credit for tax year 2012. This credit is a refundable credit and is $111 per eligible taxpayer ($222 for an eligible married couple filing a joint return). In order to qualify for the credit, you must meet all three of the following qualifications:</p><ol><li>Timely filed (including extensions) a full-year Indiana resident income tax return for tax year 2011;</li><li>Timely file (including extensions) a full-year Indiana resident income tax return for tax year 2012;</li><li>Owe some tax to the state for 2012.&nbsp;</li></ol><p><em><strong>How do I determine if I am eligible for the credit, and how do I calculate it?&nbsp;</strong></em></p><p>In order to determine if you qualify for the credit, you can walk through the following steps:&nbsp;</p><p><em>Step 1: Determine if you meet the prior year filing requirement (<a href="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/336400c1-97ae-4fd0-a7ab-419fd72cdffe/taa-step-1.pdf" target="_blank">view flowchart</a>)</em></p><p><em>Step 2: Determine if you meet the current year filing requirement&nbsp;</em><em>(<a href="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/6aceb735-01de-47a7-95e5-5b2c797a75da/taa-step-2.pdf" target="_blank">view flowchart</a>)</em></p><p><em>Step 3: Determine if you have a modified state tax liability</em></p><p>In order to claim the ATR credit, you must have a modified state tax liability. Your modified state tax liability is your gross income tax liability less the following credits:&nbsp;</p><ul><li>College Contribution Credit</li><li>Credit for Taxes Paid to Other States</li><li>Unified Tax Credit for the Elderly</li><li>Earned Income Credit</li><li>Lake County Residential Income Tax Credit</li><li>Other Specific Credits</li></ul><p>If your modified state tax liability is greater than zero, continue to Step 4. If it is less than zero, STOP. Neither you nor your spouse (if married filing jointly) can take the credit.&nbsp;</p><p><em>Step 4: Determine your ATR credit</em></p><p>If you are single or married filing separately, your ATR credit is $111. If you are married filing jointly, continue below:&nbsp;</p><ol><li>If you timely filed a 2011 Indiana full-year resident income tax return AND you are timely filing a 2012 Indiana state income tax return, the credit associated with you is $111. If not, the credit associated with you is zero.</li><li>If your spouse timely filed a 2011 Indiana full-year resident income tax return AND your spouse is timely filing a 2012 Indiana state income tax return, the credit associated with your spouse is $111. If not, the credit associated with your spouse is zero.</li></ol><p>Add the results from 1 and 2 above to get the total ATR credit associated with you and your spouse.</p><p><strong>What else do I need to know?&nbsp; </strong></p><p>It is important to note that dependents are not eligible to claim the ATR unless they file their own state tax return. Also, you must have a tax liability in order to qualify. This liability is determined before withholding is taken into account but after credits, deductions and exemptions.&nbsp;</p><p>In order to qualify, as noted above, your income tax returns must be &ldquo;timely filed.&rdquo; In order to be timely flied, the following must have occurred:</p><ul><li>Your 2011 Indiana tax return must have been filed by the 4/17/12 due date, unless it was extended.&nbsp;</li><li>Your 2012 Indiana tax return must be filed by the 4/15/13 due date, unless it was extended.&nbsp;</li></ul><p>If your return(s) were extended, the return must have been (or will be) filed within the extension period.&nbsp;</p><p><strong>Examples</strong></p><ol><li>Brandon has $22,000 wage income and claims a $1,000 exemption. His state tax due before credits is $714 ($22,000 - $1,000 = $21,000 X .034 state tax rate = $714 modified state tax liability). His state withholding credit is $800. Even though Brandon had more than $714 withheld, he still qualifies for the $111 ATR credit. With the $111 ATR credit and his $86 overpayment of taxes, his total refund is $197.</li><li>Olivia has $742 wage income and claims a $1,000 exemption. Her state tax due before credits is zero ($742 - $1,000 = -$258 = no modified state tax liability). Her withholding credit is $25. Since she doesn&rsquo;t have a modified state tax liability, she is not eligible for the ATR credit. Olivia&rsquo;s refund is $25.</li><li>Jim had a valid state extension of time to file (he filed a Form IT-9 as well as a federal Form 4868), which extended the time he had to file his 2011 state tax return to Nov. 15, 2012. He filed on June 11, 2012. Therefore, his 2011 state return was timely filed and, assuming he meets the other eligibility conditions, he would be able to claim the ATR credit.&nbsp;</li></ol>cdjonlich@ksmcpa.com (Chris Djonlich)Mon, 04 Mar 2013 17:08:00 GMTStandards Updates - 2/19/13http://www.ksmcpa.com/news-blog/standards-updates-2-19-13
<p><strong>Comment Period Expires for Proposed Financial Reporting Framework for SMEs</strong></p><p>The comment period for the AICPA&rsquo;s Proposed <em>Financial Reporting Framework for Small- and Medium-Sized Entities (SMEs) </em>ended Jan. 30, 2013. The Financial Reporting Framework for SMEs will provide a special purpose framework of accounting that blends traditional methods of accounting with income tax methods. The framework is intended to serve as a less complex and less costly alternative to generally accepted accounting principles in the United States (U.S. GAAP) and is intended for smaller-to-medium-sized, owner-managed, for-profit entities where users of the financial statements have direct access to the owner-manager. The framework is for entities that are not required to have U.S. GAAP financial statements.</p><p>Once the final document is released, owner-managed entities may wish to consider this alternative. Owner-managers should consult with their CPA practitioners, lenders and other users of the financial statements prior to changing the accounting framework of their companies. See the AICPA <a href="http://www.aicpa.org/InterestAreas/FRC/AccountingFinancialReporting/PCFR/Pages/Financial-Reporting-Framework.aspx" target="_blank" title="resource page">resource page</a> for additional information.</p><p><strong>FASB Issues ASU on Balance Sheet Offsetting</strong></p><p>The FASB issued Accounting Standards Update <a href="http://www.fasb.org/cs/ContentServer?c=Page&amp;pagename=FASB%2FPage%2FSectionPage&amp;cid=1176156316498" target="_blank" title="(ASU) No. 2013-01">(ASU) No. 2013-01</a>, <em>Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,</em> to clarify the scope of ASU No. 2011-11, <em>Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. </em>ASU 2013-01 indicates that ASU 2011-11 applies only to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that either offset in accordance with specific criteria included in Section 210-20-45 or Section 815-10-45 of the Codification or are subject to a master netting arrangement or similar agreement. Ordinary trade receivables and payables are not in the scope of ASU 2011-11, which was intended to provide comparable information about balance sheet offsetting between financial statements prepared on the basis of U.S. GAAP and financial statements prepared on the basis of International Financial Reporting Standards.</p><p>Entities with derivative arrangements described above will be impacted by this update. Entities are required to apply the amendments for fiscal years beginning on or after Jan. 1, 2013, the same effective date as ASU 2011-11, and should provide the required disclosures retrospectively for all comparative periods presented.</p><p><strong>FSAB Issues ASU on Amounts Reclassified Out of Accumulated Other Comprehensive Income </strong></p><p>The FASB has also issued <a href="http://www.fasb.org/cs/ContentServer?c=Page&amp;pagename=FASB%2FPage%2FSectionPage&amp;cid=1176156316498" target="_blank" title="ASU No. 2013-02">ASU No. 2013-02</a>, <em>Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, </em>to improve the reporting of reclassifications out of accumulated other comprehensive income (AOCI). The ASU requires entities to provide information about amounts being reclassified out of AOCI by component of other comprehensive income. The ASU further requires the presentation of significant amounts reclassified out of AOCI by respective line items of net income, if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. The presentation must be in one location but may be provided in the notes to the financial statements or in the statement where net income is presented. For amounts not required to be reclassified in their entirety to net income under U.S. GAAP, an entity must cross-reference to other disclosures providing additional detail about these amounts.</p><p>ASU 2013-02 will impact all entities that report items of other comprehensive income, but does not substantially change the information being presented. For nonpublic entities, the update is effective prospectively for reporting periods beginning after Dec. 15, 2013, with early adoption permitted.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Tue, 19 Feb 2013 20:50:00 GMT263(a) Update: Rules to Impact Truckershttp://www.ksmcpa.com/news-blog/263-a-update-rules-to-impact-truckers
<p>The question of when to deduct or capitalize amounts paid to acquire, produce or improve tangible property is frequently a point of disagreement between taxpayers and the IRS. Since 2004 the IRS has been developing guidance intended to reduce controversy related to this question.&nbsp;<a href="http://www.ksmcpa.com/documents/truck-times-2013_issue-1.pdf" target="_blank">Read more</a></p><div><a href="http://www.ksmcpa.com/documents/truck-times-2013_issue-1.pdf" target="_blank">Read the full text of the&nbsp;<em>Truck Times</em>&nbsp;newsletter</a>.</div>cdjonlich@ksmcpa.com (Chris Djonlich)Mon, 18 Feb 2013 19:45:00 GMTState & Local Tax Update - 2/13/13http://www.ksmcpa.com/news-blog/state-local-tax-update-2-13-13
<p><strong>Reassessment for Indiana Real Property Taxes</strong><br />Indiana counties are currently wrapping up their 2012 statewide reassessments. During a reassessment year, county and township assessors are required to inspect all properties and adjust all assessed values to properly reflect market value in use. Counties were last required to reassess property in 2002; therefore, some property owners should expect significant changes as a result of the 2012 reassessment.&nbsp;</p><p>Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their tax bill, it is often too late to appeal the assessed value for that year. Many counties have already mailed their assessments, and the 45-day appeal period is well underway. In fact, Lake County mailed Form-11s Jan. 5, which means <strong>the deadline to appeal the Lake County assessment is Feb. 19, 2013</strong>. Additionally, Madison County mailed Form-11s Jan. 11, which means <strong>the deadline to appeal the Madison County assessment is Feb. 25, 2013</strong>.</p><p>Contact your KSM advisor, or KSM property tax leader&nbsp;<a href="http://www.ksmcpa.com/chad-m-miller" target="" title="Chad Miller">Chad Miller</a>, as soon as you receive your Form-11. We would be happy to review the reassessed value of your commercial property to help you consider whether an appeal should be filed.</p><div style="margin-top: 10px; margin-bottom: 6px; border-top-color: rgb(204, 204, 204); border-top-width: 1px; border-top-style: solid;">&nbsp;</div><p><strong>Indiana Issues Sales Tax Ruling on Vehicle Leasing</strong><br />An automobile dealership engaged in vehicle leasing was subject to sales tax on the satisfaction of unpaid lease obligations received from unrelated third-party dealers. The taxpayer leased automobiles to customers (&quot;lessees&quot;) and held title to the vehicles during the lease period. Although the taxpayer collected and remitted sales tax as lease payments were received from the lessees, it failed to collect sales tax or pay use tax on early termination payments received from third-party dealers. An &quot;early termination&quot; occurs when a lessee enters into a new purchase or lease agreement with a third-party car dealer before the end of the current lease agreement with the taxpayer. The third-party dealer pays off the lessee&#39;s remaining obligation, in addition to purchasing the vehicle from the taxpayer. An audit concluded that the portion of the payoff amounts received from the third-party dealers was subject to sales tax because the payments were part of the lease consideration as indicated in the lease agreement executed between the taxpayer and the lessee; the payments by the dealers relieve the lessees from liability to the extent that the lease obligation is satisfied. Pursuant to Ind. Admin. Code 45 &sect; 2.2-4-27(d)(1), all consideration received and provided for in the lease contract for the rental of property is subject to tax. The Department disagreed with the taxpayer&#39;s contention that the transactions were resale sales because it directly sold the leased vehicles to third-party car dealers who purchased those vehicles for resale purposes. (See <a href="http://www.in.gov/legislative/iac/20130130-IR-045130016NRA.xml.html" target="_blank" title="LOF 04-20110564">LOF 04-20110564</a> for details.)</p><p><strong>Louisiana Requires E-filed Extensions</strong><br />Effective Jan. 20, 2013, the Louisiana Department of Revenue adopted an amendment to an administrative rule that governs the procedure for obtaining corporation income and franchise tax return filing extensions. The amended rule provides that, beginning with returns due on April 15, 2013, taxpayers seeking to obtain a corporation income and franchise tax return filing extension must submit the extension request electronically on or before the return due date. An electronic extension request can be submitted via the department&#39;s website, tax preparation software, or any other electronic method authorized by the secretary of revenue.</p><p><strong>Rhode Island Impose $500 fee on Partnerships/LLCs</strong><br />The Rhode Island Division of Taxation has issued a special edition newsletter focusing on the 2013 filing season. Recently enacted legislation requires limited partnerships and limited liability partnerships to pay an annual charge or filing fee of $500 starting with tax year 2012. In addition, new for this season, Form RI-1065, Rhode Island Partnership Income Returns, will be filed by limited partnerships, LLPs, general partnerships, and LLCs (including SMLLCs). (<em><a href="http://www.tax.ri.gov/newsletter/Rhode%20Island%20Division%20of%20Taxation%20Newsletter%20--%20First%20Quarter%202013.pdf" target="_blank" title="Rhode Island Tax News">Rhode Island Tax News</a></em> 01/01/2013)</p><p><strong>Utah Issues Notice on Successor Liability</strong><br />The Utah State Tax Commission has issued a notice informing taxpayers who are selling a business that they must file final tax returns within 30 days of the sale, close all open tax accounts with the commission, and provide the purchaser with a receipt or letter from the commission showing no sales taxes are owed. Taxpayers purchasing a business are required to apply for new tax licenses since tax licenses are not transferable, obtain a receipt from the seller showing that all sales taxes have been paid, or that no sales taxes are due, and withhold any amount of unpaid tax from the purchase price to pay to the commission within 30 days of the final sale of the business. Purchasers may be held liable for previous sales taxes the business may owe if they do not meet the foregoing requirements. Note that if business ownership changes, but the federal employer identification number is allowed to stay the same by the IRS, the new owner is not required to obtain new tax account numbers with the commission; however, the new owner must notify the commission with the new owner and officer information. See the <a href="http://tax.utah.gov/business/successor-liability" target="_blank" title="Successor Liability Notice">Successor Liability Notice</a> for details.</p><p><strong>Wisconsin Updates Sales Tax Guidance on Software</strong><br />The Wisconsin Department of Revenue has updated its guidance on the sales and use tax treatment of computer hardware, software and services. The release discusses sourcing rules for the following: (1) determining the location where a sale takes place; (2) prewritten computer software; (3) computer-related repair services and repair parts; (4) computer software maintenance contracts; and (5) software term licenses and software subscriptions. The release provides a discussion of bundled transactions, the definition of &quot;prewritten computer software,&quot; and taxable and nontaxable sales of computer hardware, software and services. The release also discusses whether sales tax must be paid on software that is obtained over the Internet and Wisconsin&#39;s treatment of cloud computing components. See <a href="http://www.revenue.wi.gov/faqs/pcs/computerc.html#c1e" target="_blank" title="sales tax FAQs">sales tax FAQs</a> for details.</p><p>For more information, contact <a href="http://www.ksmcpa.com/donna-l-niesen" target="">Donna Niesen</a> at <a alias="dniesen@ksmcpa.com" conversion="undefined" href="mailto:dniesen@ksmcpa.com" title="dniesen@ksmcpa.com">dniesen@ksmcpa.com</a>.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 13 Feb 2013 14:37:00 GMTOMB Proposes Reforms to Circulars Related to Federal Grants (Including Circular A-133)http://www.ksmcpa.com/news-blog/omb-proposes-reforms-to-circulars-related-to-federal-grants-including-circular-a-133
<p>On Jan. 31, 2013, the U.S. Office of Management and Budget (OMB) issued <a href="http://www.whitehouse.gov/sites/default/files/omb/financial/grant_reform/proposed-omb-uniform-guidance-for-federal-financial-assistance.pdf" target="_blank"><em>Proposed OMB Uniform Guidance: Cost Principles, Audit, and Administrative Requirements for Federal Awards</em></a> for comment. The proposed guidance is intended to &ldquo;ensure that grants are awarded based on merit; that management increases focus on performance outcomes; and that rules governing the allocation of federal funds are streamlined, and better focus the Single Audit oversight tool to reduce waste, fraud, and abuse.&rdquo;</p><p>In addition, a <a href="https://www.federalregister.gov/articles/2013/02/01/2013-02113/reform-of-federal-policies-relating-to-grants-and-cooperative-agreements-cost-principles-and" target="_blank">Federal Register notice</a> was issued on Feb. 1, 2013, to provide additional background on the proposed guidance. The proposed guidance would supersede and streamline the requirements from eight existing OMB circulars into one document. The provisions of the proposed guidance would apply uniformly to grant and cooperative agreement awards made to state, local, and tribal governments, institutions of higher education, and nonprofit organizations except where specific variations by entity type are included in the new circular.</p><p>In addition to consolidating administrative and cost principles into one circular, the proposed guidance provides clarity for expectations for subaward oversight and requirements for selected items of cost, while also eliminating certain existing requirements for selected items of cost.</p><p>The proposed guidance also provides for significant revisions to certain Single Audit provisions, including those utilized for determining if a Single Audit is required, major program determination, reporting of questioned costs, and types of compliance requirements tested. A summary of the key changes is as follows:</p><ul><li><strong>Audit Threshold</strong> &ndash; The threshold for the Single Audit requirement would be raised from $500,000 to $750,000. This change would eliminate the Single Audit requirement for approximately 5,000 entities while maintaining single audit coverage over more than 99 percent of the funds that are currently covered.<br />&nbsp;</li><li><strong>Type A/B Threshold</strong> &ndash; As part of the major program determination, the auditor calculates a threshold, based on federal dollars expended, to classify programs as either &ldquo;Type A&rdquo; or &ldquo;Type B&rdquo; programs. The proposed guidance would increase the minimum threshold for a program to be Type A from $300,000 to $500,000.<br />&nbsp;</li><li><strong>High-Risk Type A Programs</strong> &ndash; The proposed criteria would require Type A programs to be considered high-risk only when in the most recent audit period the program failed to receive an unqualified opinion, had a material weakness in internal controls, or had questioned costs exceeding&nbsp;5 percent of the program&rsquo;s expenditures. Currently, Type A programs are also required to be considered high-risk after receiving any finding in the most recent audit period, even though that finding may not have been essential to the financial integrity of the program.&nbsp; The requirement that every Type A program be audited as major at least once every three years remains unchanged.<br />&nbsp;</li><li><strong>Type B Programs</strong> &ndash; The proposed guidance reduces the number of high-risk Type B programs that must be tested as major from at least one-half to one-fourth of the number of low-risk Type A programs. In addition, Type B programs with expenditures less than 25 percent of the Type A/B Threshold would not need to be considered.<br />&nbsp;</li><li><strong>Percentage of Coverage</strong> &ndash; The proposed language reduces the minimum coverage required under the percentage-of-coverage rule from 50 percent to 40 percent for a regular auditee and from 25 percent to 20 percent for a low-risk auditee. This calculation relates to the coverage of federal dollars expended under programs selected as major in relation to total federal dollars expended.<br />&nbsp;</li><li><strong>Questioned Costs</strong> &ndash; The proposal includes increasing the minimum threshold for reporting questioned costs from $10,000 to $25,000 to focus on the audit findings presenting the greatest risk.<br />&nbsp;</li><li><strong>Reduction in Types of Compliance Requirements Tested</strong> &ndash; The Federal Register discusses streamlining the types of compliance requirements to be found in the Compliance Supplement from the existing&nbsp;14 to six. The remaining six types of compliance requirements would be Activities Allowed or Unallowed and Allowable Costs/Cost Principles, Cash Management, Eligibility, Reporting, Subrecipient Monitoring, and Special Tests and Provisions. The combined category of Activities Allowed or Unallowed and Allowable Costs/Cost Principles would also include some testing requirements for period of availability and matching. The Federal Register noted that federal agencies could request that deleted requirements be included under Special Tests and Provisions; however, such requests would only be accepted under certain circumstances.</li></ul><p>To improve audit follow-up, the OMB is also considering making audit reports publicly available through the Federal Audit Clearinghouse. The OMB plans to work with the Federal Audit Clearinghouse to determine if privacy concerns over personally-identifiable information and confidential business information can be overcome.</p><p>One additional idea for reform suggested to the OMB was to shorten the amount of time for the Single Audit submission from nine months to six months after the entity&rsquo;s year-end. While the OMB supports this idea, it would require changes to legislation and thus, has not been included in the proposed guidance.</p><p>Neither the proposed guidance nor the Federal Register provided an indication of the expected effective date for the new circular.</p><p>The OMB is interested in receiving broad public feedback to further refine the proposed guidance.&nbsp; Comments may be provided through&nbsp;<a href="http://www.regulations.gov/" target="_blank">www.regulations.gov</a> through May 2, 2013.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Fri, 08 Feb 2013 18:30:00 GMTTax-Free Transfers to Charity Renewed for IRA Owners 70½ or Olderhttp://www.ksmcpa.com/news-blog/tax-free-transfers-to-charity-renewed-for-ira-owners-70-or-older
<p><strong>Transfers in January 2013 Can Still Count for 2012</strong></p><p>Certain owners of individual retirement accounts (IRAs) have until Jan. 31, 2013, to make tax-free transfers to eligible charities and have them count for tax year 2012.</p><p>The American Taxpayer Relief Act of 2012 - enacted Jan. 2, 2013 - extended for 2012 and 2013 the provision authorizing qualified charitable distributions (QCDs), which are transfers from an IRA owned by someone age 70&frac12; or older, directly to an eligible charitable organization. Each year, the IRA owner can exclude from gross income up to $100,000 of these QCDs. This provision had expired at the end of 2011.</p><p>The QCD option is available regardless of whether an eligible IRA owner itemizes deductions on Schedule A. Transferred amounts are not taxable and no deduction is allowed for the transfer. However, Indiana has an add back for this transfer; thus, it is taxable for Indiana residents. QCDs are counted in determining whether the IRA owner has met his or her IRA required minimum distributions for the year.</p><p>For tax year 2012 only, IRA owners can choose to report QCDs made in January 2013 as if they occurred in 2012. In addition, IRA owners who received IRA distributions during December 2012 can contribute, in cash, part or all of the amounts distributed to eligible charities during January 2013 and have them count as 2012 QCDs.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Mon, 21 Jan 2013 20:21:00 GMTState & Local Tax Update - 1/18/13http://www.ksmcpa.com/news-blog/state-local-tax-update-1-18-13
<p><strong>Reassessment for Indiana Real Property Taxes</strong><br />Indiana counties are currently wrapping up their 2012 statewide reassessments. During a reassessment year, county and township assessors are required to inspect all properties and adjust all assessed values to properly reflect market value in use. Counties were last required to reassess property in 2002; therefore, some property owners should expect significant changes as a result of the 2012 reassessment.</p><p>Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their tax bill, it is often too late to appeal the assessed value for that year. Many counties have already mailed their assessments, and the 45-day appeal period is well underway. In fact, Marion County mailed Form-11s Dec. 14, which means <strong>the deadline to appeal the assessment is Jan. 28, 2013</strong>.</p><p>Contact your KSM advisor, or KSM property tax leader&nbsp;<a href="http://www.ksmcpa.com/chad-m-miller" target="" title="Chad Miller">Chad Miller</a>, as soon as you receive your Form-11. We would be happy to review the reassessed value of your commercial property to help you consider whether an appeal should be filed.</p><div style="margin-top: 10px; margin-bottom: 6px; border-top-color: rgb(204, 204, 204); border-top-width: 1px; border-top-style: solid;">&nbsp;</div><p><strong>Indiana Imposes New E-File Rules</strong><br />The Indiana Department of Revenue has issued additional guidance concerning the new electronic filing mandate for business taxpayers filing and remitting sales and withholding taxes. The department reminds taxpayers that Indiana offers an electronic filing and payment system for business taxpayers called INtax. The system allows business taxpayers to report and remit certain taxes and make payments. Since all Indiana businesses are now required to report and remit sales tax and withholding electronically, the Department will discontinue mailing coupons for sales and withholding taxes. Taxpayers will need to report and remit electronically or fail to comply with the law. See the recent <a href="http://www.in.gov/dor/4769.htm" target="_blank" title="guidance issued by the IDOR on 1/9/13">guidance issued by the IDOR on 1/9/13</a> for additional information.</p><p><strong>Indiana Rules on Residency</strong><br />Taxpayers with a current Florida address and owning a house in Indiana were required to file an Indiana income tax return because they were domiciled in Indiana during the taxable year. The taxpayers, a husband and wife, claimed Florida residency for the taxable year, despite owning a home in Indiana, as well as automobiles which were properly titled and registered at the Indiana Bureau of Motor Vehicles. Additionally, the husband incorporated an Indiana company in 1999 and has been the president of the company since. Although the taxpayers purchased another house and additional vehicles in Florida, the department determined that they were taxable at the place which they were originally domiciled, provided the opening of the other home has not involved an abandonment of the original domicile and the acquisition of a new one. Because documentation provided by the taxpayers showed that the husband continued to work for the company located in Indiana as the president of the company and the company&#39;s filings to the state of Indiana for the year at issue listed that the husband resided in the Indiana residence, the compensation received from the company would have been Indiana source income and subject to Indiana income tax. Therefore, the taxpayers were obligated to file their Indiana income tax return and their income is taxable in Indiana. See <a href="http://www.in.gov/legislative/iac/20121226-IR-045120638NRA.xml.html" target="_blank" title="LOF 01-20120180">LOF 01-20120180</a> for details.</p><p><strong>Indiana Rules on Equipment Lease with Operator</strong><br />A medical practice&#39;s contract with an imaging company, which provided imaging equipment and operators, did not constitute a lease of tangible personal property and, therefore, the payments made by the medical practice were not subject to use tax. Ind. Code &sect; 6-2.5-1-21 defines a lease or rental as any transfer of possession or control of tangible personal property for a fixed or indeterminate term for consideration and may include future options to purchase or extend. A lease does not include providing tangible personal property along with an operator for a fixed or indeterminate period, if the operator is necessary for the equipment to perform as designed, and the operator does more than maintain, inspect, or set up the tangible personal property. Because the medical practice provided sufficient information that the imaging company provided both equipment and operators who are &quot;necessary for the equipment to perform as designed&quot; and who do &quot;more than maintain, inspect, or set up the tangible personal property&quot; within the meaning of the statute, the contract was not considered a lease. See <a href="http://www.in.gov/legislative/iac/20121128-IR-045120600NRA.xml.html" target="_blank" title="LOF 04-20110484">LOF 04-20110484</a> for details.</p><p><strong>Illinois Cook County Enacts New Tax</strong><br />On Nov. 9, 2012, the Cook County Board of Commissioners approved and adopted Ordinance No. 12-O-63, which imposes a tax on the privilege of using in Cook County non-titled personal property which was purchased outside of the County. Effective April 1, 2013, the tax will be levied at rate of 1.25% of the non-titled personal property&#39;s value when first subject to use in the County. See <a href="http://cookcountygov.com/ll_lib_pub_cook/cook_ordinance.aspx?WindowArgs=1611" target="_blank" title="the ordinance">the ordinance</a> for details.</p><p><strong>Michigan Expands Definition of Rolling Stock</strong><br />Recently passed legislation expands the definition of &quot;rolling stock&quot; for purposes of the use tax to mean a qualified truck, a trailer designed to be drawn behind a qualified truck, and parts or other tangible personal property affixed to or to be affixed to and directly used in the operation of either a qualified truck or a trailer designed to be drawn behind a qualified truck. In addition, the rolling stock exemption has been expanded to provide that &quot;rolling stock&quot; includes other tangible personal property affixed or to be affixed to and directly used in the operation of either a qualified truck or trailer designed to be drawn behind a qualified truck. See H5444 and H 5445 for details of the changes.</p><p>For more information, contact <a href="http://www.ksmcpa.com/donna-l-niesen" target="" title="Donna Niesen">Donna Niesen</a> at <a href="mailto:dniesen@ksmcpa.com" title="dniesen@ksmcpa.com">dniesen@ksmcpa.com</a>.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Fri, 18 Jan 2013 16:16:00 GMTGetting a Handle on the Flow of Cashhttp://www.ksmcpa.com/news-blog/getting-a-handle-on-the-flow-of-cash
<p>In a slow economy, many nonprofit leaders worry about having enough money to meet their organization&#39;s financial obligations each month; but those who effectively monitor their nonprofit&#39;s cash flow can successfully predict when the money coming in will balance with the money going out, when there will be a surplus of cash, and when there will be a shortage. They can plan - and take actions - accordingly. <a href="http://www.ksmcpa.com/documents/profitable-solutions-for-nonprofits_winter-2013.pdf" target="_blank" title="Read more">Read more</a>.</p><p>To read the full text of our <em>Profitable Solutions for Nonprofits</em> newsletter, <a href="http://www.ksmcpa.com/documents/profitable-solutions-for-nonprofits_winter-2013.pdf" target="_blank">go here</a>.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Thu, 17 Jan 2013 23:38:00 GMTChanges to Indiana Sales Tax Policy on Maintenance and Warranty Contractshttp://www.ksmcpa.com/news-blog/changes-to-indiana-sales-tax-policy-on-maintenance-and-warranty-contracts
<p>The Indiana Department of Revenue recently announced significant changes to its sales tax policy regarding sales of optional maintenance and warranty contracts. The policy change was announced via an updated Information <a href="http://www.in.gov/dor/reference/files/sib02.pdf" target="_blank" title="Bulletin #2">Bulletin #2</a>, effective Jan. 1, 2013.</p><p><em>Note: The Department&#39;s positions on mandatory maintenance contracts and maintenance contracts related to software have been unchanged by the updated bulletin.</em></p><p>The Department&#39;s former policy was to treat optional maintenance and optional warranty contracts the same, imposing tax on the sale of either type of contract when it contained a right to have tangible personal property and there was a reasonable expectation that property would be provided under the contract.</p><p>The updated bulletin outlines the following state policies:</p><ol><li>Redefines warranty contracts to distinguish them from maintenance contracts</li><li>Specifically states that the substance of the contract overrules its given title</li><li>Reiterates its policy that maintenance contracts are taxable at the time of sale when it is expected that more than a de minimis amount of tangible personal property will be transferred during the term of the contract</li><li>Establishes that contract sales meeting the definition of warranty are not taxable transactions</li></ol><p><u>Optional Maintenance Contracts</u></p><p>Maintenance contracts include agreements where, at the time the contract is entered into, tangible personal property is expected to be supplied during the term of the contract. The Department&#39;s position per the updated bulletin is that these contracts are taxable bundled transactions unless the tangible personal property component is de minimis (i.e., makes up less than 10 percent of the total value of the transaction). This de minimis test would appear to require parties to quantify the anticipated breakdown between tangible personal property and services at the time the contract is entered into in order to establish whether or not the transaction is taxable. Taxpayers selling taxable maintenance contracts do not pay sales tax on their purchases of items used to fulfill their obligations under the contract.</p><p><u>Optional Warranty Contracts</u></p><p>A warranty contract is defined as &quot;a contract that acts like insurance against future potential repair costs,&quot; and consists of agreements where there may never be any tangible personal property or services provided to the customer. The Department&#39;s new position per the updated bulletin is that sales of optional warranty contracts are not taxable because it cannot be determined at the time the contract is entered into whether tangible personal property will be transferred. The warranty provider must pay sales or use tax on all purchases of items used to fulfill its obligations under the contract.</p><p>The bulletin is silent as to how the Department will treat taxpayers that observed the policies detailed in the information bulletin prior to its issuance. Because the changes articulated in the bulletin are not the result of a law change, taxpayers that have retroactive exposure as a result of the old policies may have newfound support for their position as a result of this revised information bulletin being issued.</p><p>For more information, contact <a href="http://www.ksmcpa.com/tim-c-cook" target="" title="Tim Cook">Tim Cook</a> or <a href="http://www.ksmcpa.com/donna-l-niesen" target="" title="Donna Niesen">Donna Niesen</a> in Katz, Sapper &amp; Miller&#39;s <a href="http://www.ksmcpa.com/state-local-tax" target="" title="State and Local Tax Practice">State and Local Tax Practice</a>.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Thu, 17 Jan 2013 16:43:00 GMTIRS Announces Changes to Saver's Credit Programhttp://www.ksmcpa.com/news-blog/irs-announces-changes-to-saver-s-credit-program
<p>The Internal Revenue Service (IRS) recently announced changes to the Saver&rsquo;s Credit program, which was established to encourage low- and moderate-income taxpayers to save for retirement.</p><p>By providing potential federal income tax credits to these employees, the program encourages more non-highly compensated employees to defer into their retirement plans. The tax credit ranges from 10 to 50 percent of each dollar an employee contributes. Some employees may qualify for the Saver&rsquo;s Credit if they are deferring based on their individual and/or household income (see chart below).</p><p><strong>Tax Credit for Different Income Levels </strong><br />Adjusted Gross Income&nbsp;</p><table align="center" border="1" cellpadding="4" cellspacing="1"><tbody><tr><td style="width:148px;"><strong>Credit</strong></td><td style="width:160px;"><strong>Single Filers</strong></td><td style="width:162px;"><strong>Head of Household</strong></td><td style="width:156px;"><strong>Joint Filers</strong></td></tr><tr><td style="width: 148px; background-color: rgb(232, 232, 232);">50% of Contribution</td><td style="width: 160px; background-color: rgb(232, 232, 232);">0 &ndash; $17,750</td><td style="width: 162px; background-color: rgb(232, 232, 232);">0 &ndash; $26,625</td><td style="width: 156px; background-color: rgb(232, 232, 232);">0&nbsp;&ndash;&nbsp;$35,500</td></tr><tr><td style="width:148px;">20% of Contribution</td><td>$17,751&nbsp;&ndash;&nbsp;$19,250</td><td>$26,626&nbsp;&ndash;&nbsp;$28,875</td><td>$35,001&nbsp;&ndash;&nbsp;$38,500</td></tr><tr><td style="background-color: rgb(232, 232, 232);">10% of Contribution</td><td style="width: 160px; background-color: rgb(232, 232, 232);">$19,251&nbsp;&ndash;&nbsp;$29,500</td><td style="width: 162px; background-color: rgb(232, 232, 232);">$28,876&nbsp;&ndash;&nbsp;$44,250</td><td style="width: 156px; background-color: rgb(232, 232, 232);">$38,501&nbsp;&ndash;&nbsp;$59,000</td></tr><tr><td style="width:148px;">Credit not available</td><td style="width:160px;">More than $29,500</td><td style="width:162px;">More than $44,250</td><td style="width:156px;">More than $59,000</td></tr></tbody></table><p style="clear: both;">To qualify for the Saver&rsquo;s Credit, a participant must be:</p><ul><li>18 years of age or older</li><li>Not a full-time student</li><li>Not claimed as a dependent on someone else&rsquo;s return</li></ul><p>In addition, they must meet one of the following financial criteria:</p><ul><li>File taxes individually with an income of $29,500 or less</li><li>File taxes as head of household and have income of $44,250 or less</li><li>File taxes jointly with an income of $59,000 or less</li></ul><p>As employees will be filing their 2012 tax returns soon, now is the ideal time to remind them of this valuable benefit. Communicating the existence of the Saver&rsquo;s Credit program could greatly increase the participation rate of low- and moderate-income employees in saving for their retirement.</p><p>For questions about qualifying for this program, please refer to IRS Form 8880.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Mon, 07 Jan 2013 21:45:00 GMTThe American Taxpayer Relief Act of 2012http://www.ksmcpa.com/news-blog/the-american-taxpayer-relief-act-of-2012
<p>On Jan. 1, 2013, the Senate and then the House passed the American Taxpayer Relief Act of 2012 (Act). President Obama signed the bill into law Jan. 2, 2013. This law averts some of the fiscal cliff tax consequences that were set to expire at the end of 2012.</p><p>The Act did not extend the 2% Social Security payroll tax cut that had been in place in 2011 and 2012. Thus, all employee wages below $113,700 will be subject to the full 6.2% Social Security tax rather than the reduced 4.2% that applied in 2011 and 2012.&nbsp;</p><p>The Act did not affect the <a href="http://www.ksmcpa.com/news-blog/patient-protection-and-affordable-care-act" target="">new Medicare taxes</a> that are effective for 2013 on net investment income and wages and self-employment income over certain thresholds.</p><p><strong>Individual Tax Rates </strong></p><p>Under the Act, the 39.6% tax rate has been added for individual taxpayers with taxable income over $400,000 and married taxpayers who file jointly with taxable income over $450,000. Projected tax rates for 2013 are as follows:</p><p><em>Single individuals </em></p><table border="1" cellpadding="5" cellspacing="1" color="rgb" style="width: 100%;" width="100%"><thead><tr><th scope="col" style="width: 0px; text-align: left;"><strong>If taxable income is:</strong></th><th scope="col" style="width: 0px; text-align: left;"><strong>The tax will be:</strong></th></tr></thead><tbody><tr><td style="background-color: rgb(232, 232, 232);">Not over $8,925</td><td style="background-color: rgb(232, 232, 232);">10%</td></tr><tr><td>Over $8,925 but not over $36,250</td><td>$892.20 plus 15% of the excess over $8,925</td></tr><tr><td style="background-color: rgb(232, 232, 232);">Over $36,250 but not over $87,850</td><td style="background-color: rgb(232, 232, 232);">$4,991.25 plus 25% of the excess over $36,250</td></tr><tr><td>Over $87,850 but not over $183,250</td><td>$17,891.25 plus 28% of the excess over $87,850</td></tr><tr><td style="background-color: rgb(232, 232, 232);">Over $183,250 but not over $398,350</td><td style="background-color: rgb(232, 232, 232);">$44,603.25 plus 33% of the excess over $183,250</td></tr><tr><td>Over $398,350 but not over $400,000</td><td>$115,586.25 plus 35% of the excess over $398,350</td></tr><tr><td style="background-color: rgb(232, 232, 232);">Over $400,000</td><td style="background-color: rgb(232, 232, 232);">$116,163.75 plus 39.6% of the excess over $400,000</td></tr></tbody></table><p><em>Married couples filing jointly </em></p><table border="1" cellpadding="5" cellspacing="1" style="width: 100%;" width="100%"><tbody><tr><td style="width:0px;"><strong>If taxable income is:</strong></td><td style="width:0px;"><strong>The tax will be:</strong></td></tr><tr><td style="background-color: rgb(232, 232, 232);">Not over $17,850</td><td style="background-color: rgb(232, 232, 232);">10%</td></tr><tr><td>Over $17,850 but not over $72,500</td><td>$1,785 plus 15% of the excess over $17,850</td></tr><tr><td style="background-color: rgb(232, 232, 232);">Over $72,500 but not over $146,400</td><td style="background-color: rgb(232, 232, 232);">$9,982.50 plus 25% of the excess over $72,500</td></tr><tr><td>Over $146,400 but not over $223,050</td><td>$28,457.50 plus 28% of the excess over $146,400</td></tr><tr><td style="background-color: rgb(232, 232, 232);">Over $223,050 but not over $398,350</td><td style="background-color: rgb(232, 232, 232);">$49,919.50 plus 33% of the excess over $223,050</td></tr><tr><td>Over $398,350 but not over $450,000</td><td>$107,768.50 plus 35% of the excess over $398,350</td></tr><tr><td style="background-color: rgb(232, 232, 232);">Over $450,000</td><td style="background-color: rgb(232, 232, 232);">$125,846 plus 39.6% of the excess over $450,000</td></tr></tbody></table><p><strong>Dividend and Capital Gains Rates </strong></p><p>The dividend and capital gains tax rate has been increased to 20% for those taxpayers who are in the 39.6% tax bracket. The 15% rate has remained unchanged for taxpayers in the 25%, 28%, 33% and 35% tax brackets. For those taxpayers in the 10% and 15% tax brackets, the dividend and capital gains rate remains at 0%. The rates apply to long-term capital gains only. Short-term capital gains are still taxed at the ordinary income tax rates.</p><p><strong>Alternative Minimum Tax (AMT) </strong></p><p>The AMT exemption amounts for 2012 have been increased to $50,600 for single taxpayers or taxpayers filing as head of household, $78,750 for taxpayers who are filing married filing jointly and $39,375 for taxpayers who are filing married filing separately. In addition, the AMT exemption amount will be indexed for inflation for years beginning after 2012.</p><p>Taxpayers will be allowed to offset their regular tax liability and AMT tax liability by nonrefundable personal credits.</p><p><strong>Other Individual Tax Provisions </strong></p><p>Below are some of the other individual tax provisions included in the Act.</p><ul><li>The limitation on itemized deductions (also known as the &quot;Pease&quot; limitation) for taxpayers whose adjusted gross income is above certain thresholds has been restored. This limitation reduces the total amount of itemized deductions by 3% of the amount by which the taxpayer&rsquo;s adjusted gross income exceeds the threshold amounts. Deductions for medical expenses, investment interest, casualty losses and gambling losses are excluded from this limitation. The adjusted gross income thresholds are $300,000 for taxpayers who are married filing jointly; $275,000 for taxpayers who file head of household; $250,000 for taxpayers filing single; and $150,000 for taxpayers who are married filing separate.</li><li>The phase out of personal exemptions (also known as the &quot;Pep&quot; limitation) for taxpayers whose adjusted gross income is above certain thresholds has been restored. Personal exemptions are reduced by 2% for every $2,500 of portion thereof that adjusted gross income exceeds the threshold. The adjusted gross income thresholds are $300,000 for taxpayers who are married filing jointly; $275,000 for taxpayers who file head of household; $250,000 for taxpayers filing single; and $150,000 for taxpayers who are married filing separate.</li><li>The deduction for state and local sales tax in lieu of deducting state and local income taxes has been restored for 2012 and extended to 2013.</li><li>The Act permanently extends the $1,000 child tax credit for dependents under the age of 17.</li><li>Enhancements that were previously made to the earned income tax credit in prior legislation have been extended to 2017.</li><li>The $10,000 adoption tax credit has been permanently extended. In addition the amount of expenses eligible for the credit will be indexed for inflation.</li><li>The child and dependent care credit enhancements have been permanently extended. These enhancements include a top credit amount of 35% and a cap of $3,000 of expenses for one qualifying individual and $6,000 for two or more qualifying individuals.</li><li>The $250 above-the-line deduction for teachers classroom expenses has been restored for 2012 and extended to 2013.</li><li>The provision for excluding up to $2 million on the cancellation of indebtedness on a principal residence has been extended through 2013.</li><li>The ability to deduct mortgage insurance premiums as qualified mortgage interest has been restored for 2012 and extended to 2013.</li><li>The provision allowing for a tax-free distribution from an individual retirement account to public charities for those who are 70 &frac12; or older has been restored for 2012 and extended to 2013. Special rules apply for distributions made in December 2012 and January 2013.</li><li>The credit for individuals who make energy efficient improvements to an existing residence has been restored for 2012 and extended to 2013. The lifetime maximum credit is $500.</li><li>If a company&#39;s plan allows it, an individual may convert a 401(k) account to a Roth 401(k) account. The conversion will be taxable in the year it occurs. This is effective for conversions occurring after Dec. 31, 2012.</li></ul><p><strong>Education Incentives </strong></p><p>Below are some of the provisions related to education.</p><ul><li>The American Opportunity Tax Credit has been extended through 2017. For qualified taxpayers, the credit is equal to 100% of the first $2,000 of qualified tuition and 25% of the next $2,000 in qualified expense for a maximum credit of $2,500. This credit is available for the first four years of a student&#39;s post-secondary education.</li><li>The above-the-line deduction for qualified tuition has been restored for 2012 and extended for 2013.</li><li>The Act permanently extends the suspension of the 60-month rule for the above-the-line deduction for student loan interest. The Act also permanently modifies the adjusted gross income range for the phaseout of the deduction.</li><li>The Act permanently extends the income exclusion of employer provided education assistance of up to $5,250.</li></ul><p><strong>Estate and Gift Tax Provisions</strong></p><p>The following provisions related to estate and gift taxes are included in the Act:</p><ul><li>The estate tax rate is permanently extended to 40% for the estates of decedents dying after Dec. 31, 2012. The gift tax rate is also extended to 40% for gifts made after 2012.</li><li>The lifetime exclusion amount for estate and gift taxes is $5 million and is adjusted annually for inflation. The exclusion amount for 2012 is $5.12 million.</li><li>The Act permanently extends the portability between spouses of any unused lifetime exclusion.</li></ul><p><strong>Depreciation Provisions </strong></p><p>The following provisions related to depreciation are included in the Act:</p><ul><li>For 2012 and 2013, the Section 179 expensing dollar limit is $500,000. The investment limitation is $2 million.</li><li>The Act extends 50% bonus depreciation through Dec. 31, 2013.</li><li>15 year straight line depreciation has been extended through Dec. 31, 2013 for qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements.</li></ul><p><strong>Selected Business Provisions </strong></p><p>Below are selected provisions that affect business taxpayers.</p><ul><li>The research credit has been restored for 2012 and extended for 2013. The Act also added modifications for businesses under common control and situations where there is a change in ownership.</li><li>The Work Opportunity Tax Credit has been restored for 2012 and extended for 2013.</li><li>For S corporations, the rules related to basis adjustments for charitable contributions of property have been restored for 2012 and extended for 2013.</li><li>The reduced 5 year recognition period for S corporation built-in gains tax has been restored for 2012 and extended for 2013.</li><li>The 100% capital gain exemption for qualified business stock has been restored and extended for stock acquired prior to Jan. 1, 2014.</li><li>The Alternative Fuel and Alternative Fuel Mixture Credit has been restored for 2013 and extended for 2013. This includes propane used in forklifts.</li></ul><p>The above provides an overview of many of the provisions of the American Taxpayer Relief Act of 2012. Please contact your KSM advisor for more information.&nbsp;</p> ()Fri, 04 Jan 2013 12:00:00 GMTYear-End Planning for Charitable Remainder Trusts and the 3.8% Net Investmenthttp://www.ksmcpa.com/news-blog/year-end-planning-for-charitable-remainder-trusts-and-the-3-8-net-investment
<p>Charitable remainder trusts (CRTs) might want to sell appreciated property before year-end to realize long-term capital gains in 2012 versus a later tax year. CRTs are generally not tax-paying entities. However, distributions from CRTs to CRT beneficiaries are taxable to beneficiaries to the extent of the CRT&#39;s current and accumulated income. If a CRT does not distribute all of its current income to the beneficiary, the excess is accounted for by the CRT as accumulated income and not currently taxed.</p><p>Distributions from CRTs to CRT beneficiaries may also be subject to the 3.8% surtax on net investment income (NII) for income realized in 2013 and later years. NII of a CRT beneficiary is the lesser of CRT distributions or the current and accumulated (after 2012) NII of the CRT. Income realized by a CRT in 2012 is not subject to the surtax, even if it is distributed to the CRT beneficiary after 2012. However, distributions of accumulated CRT income consist of post-2012 accumulated income first, and pre-2013 accumulated income second, for purposes of determining what income is NII and potentially subject to the surtax.</p><p>A CRT should wait until after 2012 to sell assets at a loss. Whether a CRT should sell appreciated assets before year-end depends on all of the facts and circumstances, such as the likelihood of the CRT beneficiary being subject to the 3.8% surtax. The surtax applies to joint filers with income over $250,000 or single filers with income over $200,000.</p><p>Contact your KSM advisor for more information.</p> ()Sat, 15 Dec 2012 00:00:00 GMTSurvey Finds Indiana’s Manufacturers Ready to Competehttp://www.ksmcpa.com/news-blog/survey-finds-indiana-s-manufacturers-ready-to-compete
<p><a href="http://www.ksmcpa.com/indiana-manufacturing-survey" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="undefined" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/edd2a652-5bdc-4fd6-a5d6-20aa6ee54e9c/2012_indiana_manufacturing_survey-2.jpg" style="width:175px;height:305px;padding-top:0px;padding-right:0px;padding-bottom:0px;padding-left:0px;margin-top:0px;margin-right:0px;margin-bottom:0px;margin-left:7px;border:0" title="" /></a>Indianapolis, Ind. &ndash; The certified public accounting firm of Katz, Sapper &amp; Miller LLP today released the results of their annual Indiana manufacturing survey. This study of small- to medium-size manufacturing companies was commissioned by Katz, Sapper &amp; Miller and developed in partnership with Indiana University&#39;s Kelley School of Business &ndash; Indianapolis, Conexus Indiana, and the Indiana Manufacturers Association.</p><p>The results from this year&rsquo;s survey, <em>2012 <em>Indiana Manufacturing Survey: &ldquo;Halftime&rdquo; for Indiana Manufacturing, </em></em>indicate that Hoosier manufacturers are stronger this year than at any point since the Great Recession, and are well positioned to compete in the coming years.</p><p>&ldquo;Fundamental changes are continuing to take place across manufacturing in all kinds of capabilities,&rdquo; said <a href="http://www.ksmcpa.com/scott-a-brown">Scott Brown</a>, partner-in-charge of Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/manufacturing-distribution">Manufacturing and Distribution Services Group</a>. &ldquo;Businesses are starting to invest for growth, including facilities and automation, with an eye toward providing customers increasing quality at lower prices. While many Hoosier manufacturers have managed to survive the effects of the recession, challenges remain. Of course, not all manufacturers have found the perfect winning strategy, but many are heading in the right direction and some are excelling during these challenging times.&quot;</p><p>Other key findings reveal:</p><ul><li>Hoosier manufacturers have largely shaken off the effects of the Great Recession and have stabilized their businesses. A significant majority of Indiana&#39;s manufacturers now report that their business is either &quot;healthy&quot; or &quot;stable&rdquo; with tougher times behind them.</li><li>Survey results indicate that the past&#39;s relentless rounds of downsizing are over, and while that approach worked well when mere survival was paramount, it is hardly a winning strategy for the future.</li><li>Many Hoosier manufacturers now recognize that the winning strategy is targeted investment aimed at growth. Over 70% of respondents reported that their goals were increasing investment in areas either essential for revenue growth, or across the entire business.</li><li>Indiana remains well positioned to lead American manufacturing. Hoosier manufacturers are highly competitive in a broad variety of industries and products, and, in fact, one in 10 of the companies in this survey are planning to open a new facility in Indiana in the near future.</li><li>A significant number of respondents report that they are onshoring manufacturing back to the United States. Indiana&rsquo;s competitive advantage remains the fact that nowhere else in America allows manufacturers to position themselves closer to their customers and markets, or offers greater advantages in terms of suppliers, workforce quality, and transportation.</li><li>Successful manufacturers are continuing to rely on process improvement programs such as &quot;Lean&quot; and &quot;Six Sigma&quot; for implementing change, as well as increasingly taking advantage of advanced automation or smart manufacturing technologies to remain competitive.</li></ul><p style="margin-left:-.25in;"><a href="http://www.ksmcpa.com/indiana-manufacturing-survey">Download the complete results of the <em>2012 Indiana Manufacturing Survey: &ldquo;Halftime&rdquo; for Indiana Manufacturing</em>.</a></p><p align="center">####</p><p style="margin-left:-.25in;"><strong>About Katz, Sapper &amp; Miller</strong><br />As one of the top 100 CPA firms in the nation, Katz, Sapper &amp; Miller has earned a reputation as a leader in the areas of accounting, tax and consulting services. Founded in 1942, the firm has more than 250 employees and is headquartered in Indianapolis, Ind. Katz, Sapper &amp; Miller was named one of the &ldquo;Best of the Best&rdquo; accounting firms in the nation by <em>INSIDE Public Accounting </em>magazine and has been recognized by the Indiana Chamber of Commerce as one of the &ldquo;Best Places to Work in Indiana&rdquo; for&nbsp;seven consecutive years. The firm is an independent member of Nexia International, a leading global organization of independent accounting and consulting firms. Learn more at <a href="http://www.ksmcpa.com" target="">ksmcpa.com</a>.</p><p style="margin-left:-.25in;"><strong>About the Kelley School of Business &ndash; Indianapolis</strong><br />The IU Kelley School of Business has been a leader in American business education for more than 90 years. With an enrollment of more than 5,700 undergraduate and nearly 2,200 graduate students across two campuses, it is among the premier business schools in the country. Kelley&rsquo;s Indianapolis campus, based at IUPUI, is home to the school&rsquo;s Evening MBA, Master of Science in Accounting, and Master of Science in Taxation programs and a full-time undergraduate program. The part-time Evening MBA program is ranked ninth in the country by <em>U.S. News and World Report</em>. Learn more at <a href="http://www.kelley.iupui.edu" target="_blank">kelley.iupui.edu</a>.</p><p style="margin-left:-.25in;"><strong>About Conexus Indiana</strong><br />Launched by the Central Indiana Corporate Partnership, Conexus Indiana is the state&#39;s advanced manufacturing and logistics initiative, dedicated to making Indiana a global leader. Conexus is focused on strategic priorities like workforce development, creating new industry partnerships and promoting Indiana&#39;s advantages in manufacturing and logistics. Learn more at <a href="http://www.ConexusIndiana.com" target="_blank">ConexusIndiana.com</a>.</p><p style="margin-left:-.25in;"><strong>About the Indiana Manufacturers Association</strong><br />Formed in 1901, the Indiana Manufacturers Association is the second oldest manufacturers association in the country and the only trade association in Indiana that exclusively focuses on manufacturing. The Indiana Manufacturers Association is dedicated to advocating for a business climate that creates, protects, and promotes quality manufacturing jobs in Indiana. Indiana is one of the top manufacturing states in America in the wealth and jobs created, sustained, and supported. More than 50 percent of all employment in Indiana has some connection to manufacturing.</p><p style="margin-left:-.25in;">The staff of the Indiana Manufacturers Association has more than 160 years of combined governmental affairs experience and is recognized as experts in many areas, including tax, environment, labor relations, human resources, and healthcare. Learn more at <a href="http://www.imaweb.com" target="_blank">imaweb.com</a>.</p> ()Fri, 07 Dec 2012 00:00:00 GMTIRS Now Requesting and Examining Donor Acknowledgment Lettershttp://www.ksmcpa.com/news-blog/irs-now-requesting-and-examining-donor-acknowledgment-letters
<p>With the end of the year fast approaching, many organizations will be documenting contributions from their donors. In order for the donor to deduct the contribution, especially for contributions of $250 or more, documentation must be retained. The donor will require an acknowledgment letter from the organization. The Internal Revenue Service (IRS) is starting to request and examine these acknowledgment letters when auditing tax returns. Specifically, the IRS is looking for the language relating to any goods or services provided by the organization as well as substantiation of the actual donation.</p><p>For example, in <em>Durden v. Commissioner</em>, the taxpayer received an acknowledgment letter from their church that omitted the language related to goods and services provided. The IRS disallowed the taxpayer to receive credit for their contributions to the church stating that the acknowledgment letter received did not meet the criteria set forth in the statute.</p><p>For an acknowledgment letter to be considered valid, the following details must be included:</p><ol><li>The amount of cash and a description of property (but not the value) of any property other than cash contributed,</li><li>Whether the organization provided any goods or services in consideration for the contribution, and</li><li>A description and good faith estimate of the value of goods or services referred to in #2 above, or if such goods and services consist solely of intangible religious benefits, a statement to that effect.</li></ol><p>For more information, contact your KSM advisor.</p> ()Fri, 07 Dec 2012 00:00:00 GMTIRS Announces 2013 Cost-of-Living Adjustmentshttp://www.ksmcpa.com/news-blog/irs-announces-2013-cost-of-living-adjustments
<p>The IRS has announced the 2013 cost-of-living adjustments (COLAs) for retirement plans. Many of the limits pertaining to pension and other retirement plans are changed for 2013. Significant changes are as follows:</p><p><strong>Elective Deferrals:</strong> The dollar limit for Section 401(k) plans, Section 403(b) plans and most 457 plans increase to <strong>$17,500</strong> (up from $17,000), or <strong>$23,000</strong> if over 50 and the plan adopts catch-up provisioning.</p><p><strong>Defined Benefit Plan:</strong> The limitation on the annual benefit under a defined benefit plan is increased to <strong>$205,000</strong> (up from $200,000). Plan provisions must preclude the possibility that any annual benefit that exceeds the limitations will be payable at any time. Further, the plan provisions (including the provisions of any annuity) generally must preclude the possibility that any annual benefit exceeding these limitations will be accrued, distributed, or otherwise payable in any optional form of benefit (including the normal form of benefit) at any time from the plan.</p><p><strong>Annual Compensation Limit:</strong> The maximum amount of annual compensation that can be taken into account for various qualified plan purposes is increased to <strong>$255,000</strong> (up from $250,000). For example, if an employer provides an annual contribution equal to 5% of salary under a qualified plan, an employee with a salary of $260,000 will have $12,750 contributed to his account ($255,000 * 5%).</p><p><strong>Defined Contribution Plan:</strong> The limit on the annual additions to a participant&#39;s defined contribution account is increased to <strong>$51,000</strong> (up from $50,000). The amount that can be allocated during a limitation year (typically the calendar year unless the plan provides otherwise) as an &quot;annual addition&quot; to a participant&#39;s account in a defined contribution plan is limited to the lesser of $51,000 or 100% of compensation.</p><p><strong>IRA Contribution Limit:</strong> Increases to <strong>$5,500</strong> (up from $5,000), or <strong>$6,500</strong> if over 50 and the plan adopts catch-up provisioning. The due date for making a 2012 contribution is April 15, 2013. In order to make a contribution, the individual must have earned income and be under age 70 &frac12; at the end of the year.</p><p><strong>SIMPLE Accounts:</strong> The maximum amount of compensation an employee may elect to defer for a SIMPLE plan is increased to <strong>$12,000</strong> (up from $11,500), or $14,500 if over 50 and plan adopts catch-up provisions. An employer can either match employee elective deferrals dollar for dollar up to 3% of wages, or contribute 2% of wages (up to $255,000).</p><div style="border-top: 1px solid #ccc; margin: 10px 0 6px;">&nbsp;</div><p><strong>Standard Mileage Rates for 2013 </strong></p><p>The IRS has issued 2013 optional standard mileage rates used to calculate the deductible costs of operating automobile for business, charitable, medical or moving purposes. Beginning Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:</p><ul><li>56.5 cents per mile for business miles driven</li><li>24 cents per mile driven for medical or moving purposes</li><li>14 cents per mile driven in service of charitable organizations</li></ul> ()Wed, 05 Dec 2012 00:00:00 GMTYear-End Planning: Old Strategies May Result in Higher Overall Tax Burdenshttp://www.ksmcpa.com/news-blog/year-end-planning-old-strategies-may-result-in-higher-overall-tax-burdens
<p>With the re-election of President Obama and the Democratic majority retained in the Senate, it is now more likely that certain tax benefits and lower rates set to expire on Dec. 31, 2012 will expire or be adjusted for higher income taxpayers.</p><p>The benefits of certain tax deductions or strategies may also be curtailed for certain taxpayers after 2012 as Congress looks for ways to increase revenues with or without tax rate increases. <a href="http://www.ksmcpa.com/documents/the-advisor-2012_issue-2.pdf" target="_blank" title="Read more">Read more</a>.</p><p><a href="http://www.ksmcpa.com/documents/the-advisor-2012_issue-2.pdf" target="_blank" title="Read the full text of the newsletter">Read the full text of <em>The Advisor</em> newsletter</a>.</p> ()Tue, 04 Dec 2012 00:00:00 GMTState & Local Tax Update - 11/30/12http://www.ksmcpa.com/news-blog/state-local-tax-update-11-30-12
<p><strong>Reassessment for Indiana Real Property Taxes</strong>: Indiana counties are currently wrapping up their 2012 statewide reassessments. During a reassessment year, county and township assessors are required to inspect all properties and adjust all assessed values to properly reflect market value in use. Counties were last required to reassess property in 2002; therefore, some property owners should expect significant changes as a result of the 2012 reassessment.<br /><br />Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their tax bill, it is often too late to appeal the assessed value for that year. Some counties began mailing their assessment notices this month.<br /><br />Contact your KSM advisor, or KSM property tax leader <a href="http://cl.exct.net/?qs=d3c95e85400c8718d447f1a35ee52fb7fc3c36ddc9a22677f168020534169a27" title="Chad Miller">Chad Miller</a>, as soon as you receive your Form-11. We would be happy to review the reassessed value of your commercial property to help you consider whether an appeal should be filed.</p><div style="margin: 10px 0px 6px; border-top: #ccc 1px solid">&nbsp;</div><p><strong>Indiana Updates County Income Tax Rate Notice:</strong> The Indiana Department of Revenue has updated its list of Indiana counties that have adopted county income taxes with resident and nonresident rate changes for Hancock County. The county income tax rates are effective for withholding purposes for periods beginning on or after Nov. 1, 2012. The rates apply to wages paid after Oct. 31, 2012, and the tax is withheld and paid at the same time and in the same manner as the state income tax. While this list is intended for those counties whose income tax rates are changed and effective Nov. 1, 2012, counties can elect to change their rates on Dec. 1. See <a href="http://cl.exct.net/?qs=79bad97bbbeb7f7e22a0fd354311de52b59ea923edf4054320607fc70e30edd3" title="Departmental Notice #1">Departmental Notice #1</a> for details of the county rates.</p><p><strong>Indiana Issues Guidance on Ice Removal Services: </strong>A company&#39;s sales of its lawn-care and snow-removal services, which included labor charges and salt applications to remove ice on the ground, were unitary transactions and therefore subject to sales tax. The company has two categories of customers: The first category of customers supply salt/sand and the company only provides labor, while the second category of customers do not supply salt/sand; rather, the latter pays the company to plow snow and also remove ice using the company&#39;s materials when needed. The customers who supply salt to the company paid for labor charges only, and therefore the services provided were not subject to sales tax. However, the customers in the second category were charged one price per visit for ice removal that included both labor and materials (salt). When a combined, single charge for material and labor is invoiced as one amount it is considered a unitary transaction that is subject to sales tax. See LOF 04-20120031 for details.</p><p><strong>Indiana Issues Sales Tax Guidance on Trade-ins: </strong>A company selling recreational vehicles, travel trailers, and parts was not subject to gross retail tax on the trade-in allowance deductions provided to customers who traded in a travel trailer to purchase an RV, or when a customer traded in an RV to purchase a travel trailer. Ind. Code &sect; 6-2.5-1-5(b) provides that gross retail income does not include that part of the gross receipts attributable to the value of any tangible personal property received in a like-kind exchange in the retail transaction. A like-kind exchange means a motor vehicle traded for another motor vehicle or a trailer traded for another trailer. An exception exists for transactions where a motorized recreational vehicle is traded in for a non-motorized recreational vehicle, as in the above instance. The Indiana Department of Revenue considers the motorized and non-motorized recreational vehicles to be like-kind and therefore exempt from gross retail tax. However, transactions where the company accepted a boat as a trade-in for a motor home or a travel trailer did not qualify for the like-kind exchange treatment and were subject to gross retail tax. See LOF 04-20120348 for details.</p><p><strong>Illinois Rules on Taxability of Guaranteed Payments: </strong>The Illinois Department of Revenue ruled that a taxpayer owes Illinois income tax as a partner receiving guaranteed payments from a partnership doing business in Illinois during the 2010 tax year. The department noted that guaranteed payments received from the partnership are ordinary income, which was characterized by the partnership as business income. Therefore, the amount of the guaranteed payment that was apportioned to Illinois by the partnership is taxable to the taxpayer by Illinois and subject to withholding. The department further noted their decision to follow other courts in determining that a partner in a partnership doing business in Illinois has sufficient nexus with Illinois to be subject to Illinois income taxation. See GIL IT 12-0028 for details.</p><p><strong>Pennsylvania Rules on Taxability of Pallets:</strong> The Pennsylvania Supreme Court has affirmed a Commonwealth Court opinion, holding that the rental of wooden pallets used to transport manufactured paper products from the factory to the warehouse is not subject to sales and use tax. The Commonwealth Court held that a &quot;container,&quot; while not defined by statute or regulation, is generally a receptacle that holds things within it, where as a pallet is merely the floor of container that is created by adding cardboard sheets, posts and stretch wrap. The Board argued that the Pennsylvania Supreme Court determined that pallets were containers in <em>Commw. v. Yorktowne Paper Mills, Inc. </em>, 426 Pa 18, 231 A2d 287 (1967). However, the question in that case was whether the lumber, nails and metal bands used to contain the materials on pallets were taxable, and the state high court determined that the entire unit (pallet with metal bands securing the product) constituted a taxable container. In this case, the only question was whether the pallets by themselves are taxable as returnable containers, and the Commonwealth Court determined that they are not. See <em>Procter &amp; Gamble Paper Products Co. v. Commw., Pa</em>. Commw. Ct., (Oct. 16, 2012) for more information.</p><p><strong>Wisconsin Rules on Personal Liability for Sales/Use Tax: </strong>The circuit court upheld a decision of the Wisconsin Tax Appeals Commission, finding that an owner of a used car dealership was personally liable for the company&#39;s unpaid sales and use taxes. There was substantial evidence to find the owner was liable under Wis. Stat. &sect; 77.60(9) because all three elements required for personal liability were met. The petitioner was an owner of the dealership, and he opened the company&#39;s checking account and was the sole signatory for that account. The owner&#39;s control over the business and the checking account was sufficient to show that he had the authority to pay the sales taxes. The petitioner also had keys to the business and held himself out as a manager of the dealership, and he was aware that sales taxes were due on cars sold by the dealership. His position as owner and manager, and his knowledge that taxes were due along with his ability to pay those taxes establishes that the petitioner had the duty to pay the sales taxes. See <em>Marxer v. Wis. Dept. Rev.</em>, (Sept, 26, 2012) for details.</p><p>For more information, contact <a href="http://cl.exct.net/?qs=79bad97bbbeb7f7e345245330d69e8a37f7db5d0f1d8edeb1a005cf89d8eb6e5" title="Donna Niesen">Donna Niesen</a> at <a href="mailto:dniesen@ksmcpa.com" title="dniesen@ksmcpa.com">dniesen@ksmcpa.com</a>.</p> ()Sat, 01 Dec 2012 00:00:00 GMTTax Court Validates Defined Value Clause for Interfamily Transfershttp://www.ksmcpa.com/news-blog/tax-court-validates-defined-value-clause-for-interfamily-transfers
<p>In a big win for the taxpayer &ndash; and for estate and gift tax professionals &ndash; the Tax Court resoundingly rejected the Internal Revenue Service&#39;s (IRS) three arguments against defined value clauses, even in cases involving interfamily transfers. In its decision, the court also provided what amounts to a four-part &quot;blueprint&quot; for drafting successful formula clauses in the future. <a href="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/3c4f1ae5-d8af-42f5-9378-18a2a2375be5/valuation-services-bulletin_2012_fall.pdf" target="_blank">Read more</a></p><p>To read the full text of our Valuation Services Group newsletter, <a href="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/3c4f1ae5-d8af-42f5-9378-18a2a2375be5/valuation-services-bulletin_2012_fall.pdf" target="_blank">go here</a>.</p> ()Sat, 01 Dec 2012 00:00:00 GMTThe ESOP Opportunity for Trucking Companieshttp://www.ksmcpa.com/news-blog/the-esop-opportunity-for-trucking-companies
<p>Trucking company owners can use Employee Stock Ownership Plans (ESOPs) as part of their succession planning strategy. As a tax-advantaged alternative to third-party sales, a sale to an ESOP should be considered by trucking company owners assessing their succession planning options.</p><p><strong>ESOP Sale Alternative</strong></p><p>Having key managers and employees take over operations when the owners retire is appealing. However, since many of these key employees have limited capital to fund a management buyout, using an ESOP as part of this buyout structure can make the transaction possible.</p><p>An ESOP can borrow funds to acquire company stock, thereby financing a buyout in a more tax-efficient manner, since the ESOP compensation expenses recorded for employees allows for repayment of loans with pre-tax dollars.</p><p><strong>Benefits of Sale to an ESOP</strong></p><p>Federal tax code contains provisions that favor the sale of company stock to an ESOP. Shareholders who sell to an ESOP can defer capital gains tax payments on their proceeds, when following the guidelines set forth under Section 1042 of the Internal Revenue Code.</p><p>Additional tax advantages for companies exist, most notably for Sub-S corporations. The Sub-S corporation ESOP is not taxable on its share of corporate earnings. The taxes are deferred until employees take distribution from the plan upon retirement, death, disability or termination.</p><p>An ESOP can lead to the development of an employee-ownership culture, one that empowers and rewards employees for their efforts, by demonstrating the financial benefits of ownership and sharing company performance data in a way that emphasizes how each work group contributes to success.</p><p><strong>Considering the ESOP Option</strong></p><p>Trucking company owners invest decades of effort to build the value in their businesses. A liquidity event will eventually occur to provide for their retirement and estate planning needs. When trucking company owners are considering their succession plan options, an ESOP should be among the opportunities they consider. The ESOP opportunity could offer the &ldquo;win-win&rdquo; alternative for both owners and their employees.</p><p>For more information, please contact <a href="http://www.ksmcpa.com/timothy-w-almack" target="">Tim Almack</a>, partner-in-charge of KSM&rsquo;s <a href="http://www.ksmcpa.com/transportation">Transportation Services Group</a>.</p> ()Mon, 19 Nov 2012 12:00:00 GMTIRS Guidance for Health FSAshttp://www.ksmcpa.com/news-blog/irs-guidance-for-health-fsas
<p>Starting in 2013, there are new rules about the amount that can be contributed to health flexible spending arrangements (FSAs). <a href="http://www.irs.gov/file_source/pub/irs-drop/n-12-40.pdf" target="_blank">Notice 2012-40</a> provides information about the new rules and flexibility for employers applying the new rules, and requests comments about other possible administrative changes to the rules on FSA contributions. In the Notice, the Internal Revenue Service (IRS) has provided clarity on how to implement the upcoming $2,500 limit on salary reduction contributions to health FSAs set by the Patient Protection and Affordable Care Act (PPACA).</p><p>The Notice, which was issued by the IRS on May 30, 2012, also provides the deadline (before the end of the 2014 plan year) for amending cafeteria plans to reflect this new limit. The Treasury Department and the IRS are considering modifying the &ldquo;use-it-or-lose-it&rdquo; rule that has long troubled health FSA participants.</p><p><strong>Background</strong></p><p>The PPACA affects health FSAs by adding Internal Revenue Code Section 125(i), which stipulates a $2,500 limit on salary reduction contributions to health FSAs effective for taxable years beginning after Dec. 31, 2012. The $2,500 limit will be indexed for inflation in future years. Through 2012, employees could establish their own limits as long as the limits were disclosed in the plan document.&nbsp;</p><p>The PPACA requirements overlap with proposed cafeteria plan regulations that the IRS issued in 2007. These proposed regulations contain requirements regarding what must be included in a written cafeteria plan document. One requirement is to specify the maximum amount of salary reduction contributions that may be made to a health FSA. The proposed regulations generally require plan amendments to be adopted prior to the date when they become effective. The proposed regulations also contain the &ldquo;use-it-or-lose-it&rdquo; rule, which generally prohibits contributions under a health FSA from being used in a subsequent plan year or period of coverage. Failure to satisfy these rules would trigger disqualification of the entire arrangement resulting in adverse tax consequences. Plan sponsors must be aware of the impact the new guidance will have on their cafeteria plans and health FSAs.</p><p><strong>Interpretation</strong></p><p>The Notice clarifies how the new $2,500 limit will operate. It specifies that the &ldquo;taxable year&rdquo; described under the PPACA provision means the plan year and not the taxable year of the plan sponsor. The $2,500 limit on health FSA salary reduction contributions will apply on a plan year basis effective for plan years beginning after Dec. 31, 2012.</p><p>The Notice also addresses operational issues in dealing with the $2,500 limit. First, if a plan provides a grace period (<em>i.e</em><em>.,</em> participants in a calendar year health FSA have until March 15 of the following plan year to <em>incur </em>expenses and get reimbursements), unused salary reduction contributions carried over into the next year would not count against the $2,500 limit for the subsequent year. Not all health FSA plan documents contain this provision and a plan sponsor cannot apply this operational rule unless it is in the plan document.</p><p>Second, the Notice provides guidance as to how employer non-elective contributions, sometimes referred to as flex credits, are to be accounted for in dealing with the $2,500 limit. If such flex credits must be used for a qualified benefit such as a health FSA, the participant may still elect to make a salary reduction contribution of $2,500. However, if the flex credit may be used for the qualified benefit <u>or</u> cashed out, those flex credits will be treated as a salary reduction contribution and, as a result, will impact the amount of salary reduction contribution that a participant may make.</p><p>Third, the Notice provides relief and the opportunity for correction in the event that salary reduction contributions exceed the $2,500 limit, and if it was the result of a reasonable mistake and not due to the employer&rsquo;s neglect.</p><p><strong>Request for Comments -- Use-It-or-Lose-It Rule</strong></p><p>The IRS specifically requested comments in the Notice on the use-it-or-lose-it rule under the proposed regulations. The IRS and the Treasury Department are considering modification of the use-it-or-lose-it rule.&nbsp; The comment period ended Aug. 17, 2012 and may result in the liberalization of the use-it-or-lose-it rule.</p><p><strong>Conclusion</strong></p><p>Notice 2012-40 provided some needed guidance in dealing with the new $2,500 limit for health FSAs. Due to the delayed plan amendment requirement and outstanding final cafeteria plan regulation, plan sponsors have generally been waiting before taking action with respect to their plan documents. However, plan sponsors must be ready to comply from an operational perspective in 2013. Because many cafeteria plans are operated on a&nbsp;calendar year basis, this will require action in late 2012 to ensure that plan participants are notified of the changes and plan operations are updated accordingly.</p><p><em>The contents of this message are for informational purposes only. If you have any questions regarding Notice 2012-40 and its impact on your health FSA, please contact any of the following members of our <a href="http://www.ksmcpa.com/employee-benefit-plans" target="">Employee Benefit Plan Services Group</a>.</em></p> ()Mon, 19 Nov 2012 12:00:00 GMTRecent Developments in Accounting Standardshttp://www.ksmcpa.com/news-blog/recent-developments-in-accounting-standards
<ul><li><a name="top"></a><a href="#Intangible" target="">FASB Issues Accounting Standards Update No. 2012-02, <em>Intangibles&mdash;Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment</em></a><br />&nbsp;</li><li><a href="#Assets" target="">FASB Issues Accounting Standards Update No. 2012-05, <em>Statement of Cash Flows (Topic 230): Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows</em></a><br />&nbsp;</li><li><a href="#Income" target="">FASB Issues Proposed Accounting Standards Update, <em>Comprehensive Income (Topic 220): Presentation of Items Reclassified Out of Accumulated Other Comprehensive Income</em></a><br />&nbsp;</li><li><a href="#Framework" target="">American Institute of Certified Public Accountants Has Proposed a Financial Reporting Framework for SMEs</a></li></ul><div style="margin: 0px; border-top: #cccccc 1px solid">&nbsp;</div><p><a name="Intangible"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a> <strong>FASB </strong><strong>Issues Accounting Standards Update No. 2012-02, </strong><strong><em>Intangibles&mdash;Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment</em></strong></p><p>In July 2012, the <a href="http://www.fasb.org/home" target="_blank">Financial Accounting Standards Board </a>(FASB) issued Accounting Standards Update No. 2012-02, <a href="http://www.fasb.org/jsp/FASB/Page/SectionPage&amp;cid=1176156316498" target="_blank">Intangibles&mdash;Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment</a>. The objective of the amendment is to help simplify the impairment testing and to improve consistency in impairment testing of indefinite-lived intangible assets other than goodwill, such as licenses, distribution rights and trademarks.&nbsp;</p><p>Previously, a company had to perform an annual impairment test of an indefinite-lived intangible asset by comparing the fair value of the asset to its carrying amount on the books. If the fair value was determined to be below the carrying amount, then an impairment loss was recognized in the amount of the excess cost over fair value.</p><p>Under this update, a company now has the option to perform a qualitative assessment first to determine whether a quantitative assessment of fair value&nbsp;would be needed. If the company&rsquo;s qualitative assessment determines that it is &quot;more likely than not&quot; that the indefinite-lived asset is impaired, then the company is required to&nbsp;perform the qualitative assessment. If it is determined that the indefinite-lived asset is not &quot;more likely than not&quot; to be impaired, then the company is able to stop its assessment at that point.</p><p>The amendments in this update permitting a company to assess qualitative factors is similar to the amendments for goodwill impairment testing contained in ASU No. 2011-08.</p><p>ASU No. 2012-02 applies to all entities with long-lived intangible assets and is effective for fiscal years beginning after September 15, 2012. Early adoption is permitted.</p><div style="margin: 0px; border-top: #cccccc 1px solid">&nbsp;</div><p><a name="Assets"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a> <strong>FASB </strong><strong>Issues Accounting Standards Update No. 2012-05, <em>Statement of Cash Flows (Topic 230): Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows</em></strong></p><p>The FASB issued <a href="http://www.fasb.org/jsp/FASB/Page/SectionPage&amp;cid=1176156316498" target="_blank">Accounting Standards Update No. 2012-05, <em>Statement of Cash Flows (Topic 230): Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows</em></a> on October 22, 2012. The update sets forth guidance on the classification of cash receipts from the sale of certain donated financial assets, such as investment securities, in the statement of cash flows. Prior to this ASU, Not-for-Profit (NFP) entities would classify these cash flows as either investing cash flows or as either operating or financing cash flows dependent upon how they classified cash inflows resulting from cash contributions.</p><p>Under this update, NFPs will classify the cash receipts from the sale of donated financial assets consistent with where the NFP classifies its cash donations received when the sales of the financial assets donated is nearly immediately converted to cash without any NFP-imposed limitations for the sale. Under this scenario, the cash flows would be recorded as an operating cash flow, as long as there is no donor restricted use imposed for long-term purposes. If there is a restriction imposed for the use for long-term purposes, then the cash receipts should be classified in financing activities. If the financial assets are not nearly immediately converted to cash, then at the time a sale does occur, the cash inflows will be classified as cash flow from investing activities for the NFP.</p><p>ASU No. 2012-05 is effective prospectively for fiscal years, and interim periods within those years, beginning after June 15, 2013. Retrospective application to all prior periods presented upon the date of adoption is permitted.</p><div style="margin: 0px; border-top: #cccccc 1px solid">&nbsp;</div><p><a name="Income"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a> <strong>FASB Issues Proposed Accounting Standards Update, <em>Comprehensive Income (Topic 220): Presentation of Items Reclassified Out of Accumulated Other Comprehensive Income</em></strong></p><p>The FASB issued a proposed accounting standard update on August 16, 2012, related to the presentation of amounts that are reclassified out of accumulated other comprehensive income (AOCI).&nbsp;The full proposed ASU can be found on the <a href="http://www.fasb.org/jsp/FASB/Page/SectionPage&amp;cid=1176157086783" target="_blank">FASB site</a>.</p><p>The proposed update does not change the reporting of other comprehensive income but would require enhanced disclosures to present separately by component reclassification out of AOCI. A tabular presentation related to amounts reclassified out of AOCI for items required under U.S. GAAP to be reclassified directly to net income in their entirety would be required. For items not required under U.S. GAAP to be reclassified directly to net income in their entirety, the tabular disclosure would only include a cross-reference to other disclosures for those items. The updated presentation is designed to help provide a better reference to other disclosures that have additional information related to amounts reclassified out of AOCI. The proposed change is due to the <a href="http://www.fasb.org/home" target="_blank">FASB</a>&#39;s cost/benefit analysis of its issuance of ASU <a href="http://www.fasb.org/cs/BlobServer?blobcol=urldata&amp;blobtable=MungoBlobs&amp;blobkey=id&amp;blobwhere=1175822630078&amp;blobheader=application%2Fpdf" target="_blank">No. 2011-05</a>, <em>Comprehensive Income (Topic 220): Presentation of Comprehensive Income</em>, which was designed to increase the prominence of other comprehensive income in the financial statements.</p><p>The amendments in this proposed update would apply to all companies that issue financial statements in accordance with U.S. GAAP and that report items of other comprehensive income. The effective date will be determined after the FASB considers the feedback from the proposal.</p><div style="margin: 0px; border-top: #cccccc 1px solid">&nbsp;</div><p><a name="Framework"></a><a href="#top" target=""><img align="right" alt="" onresize="ResizeImage(this);" sizeratio="0.3548387096774194" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/837c6a8f-1635-45c6-8455-8f40d763f368/top_icon.gif" style="border-bottom: 0px; border-left: 0px; padding-bottom: 0px; margin: 0px; padding-left: 0px; width: 31px; padding-right: 0px; height: 11px; border-top: 0px; border-right: 0px; padding-top: 0px" title="" /></a> <strong>American Institute of Certified Public Accountants Has Proposed a Financial Reporting Framework for SMEs</strong></p><p>On November 1, 2012, the American Institute of Certified Public Accountants (AICPA) released for public comment the exposure draft <em>Proposed Financial Reporting Framework for Small- and Medium-Sized Entities. </em>The proposed Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs) is designed for privately owned, for-profit entities that are not required to produce financial statements in accordance with U.S. GAAP.</p><p>The proposed FRF for SMEs is a special purpose framework (formerly referred to as other comprehensive basis of accounting) intended for use by privately-held small- to medium-sized entities in preparing their financial statements. The proposed FRF for SMEs follows the general principal that historical cost is the most useful measurement basis for the users of SME financial statements and the most cost-beneficial approach for management.</p><p>Some of the key features of the proposed framework include the following:</p><ul><li>Historical cost is the primary measurement basis</li><li>Closely aligned with the accrual basis of accounting</li><li>Disclosures are reduced, while still providing users with the relevant information</li><li>Familiar and traditional accounting methods are used</li><li>Adjustments needed to reconcile tax return income with book income are reduced</li><li>Principal-based framework, usable across industries by incorporated and unincorporated entities</li><li>Only financial statement matters that are typically encountered by SMEs are addressed in the framework</li></ul><p>The FRF for SMEs is not proposed as an authoritative document, and the AICPA would have no authority to require the use of the FRF for SMEs. Use of the FRF for SMEs would be a choice made by management of the entity after considering the users of the financial statements.</p><p>Currently, the AICPA is asking for comments on the proposed framework. The comment period ends January 30, 2013. The AICPA has a <a href="http://www.aicpa.org/InterestAreas/FRC/AccountingFinancialReporting/PCFR/Pages/Financial-Reporting-Framework.aspx" target="_blank">resource page</a> that provides additional information on the proposed FRF for SMEs:</p><p><a href="http://www.aicpa.org/InterestAreas/FRC/AccountingFinancialReporting/PCFR/Pages/Financial-Reporting-Framework.aspx" target="_blank">http://www.aicpa.org/InterestAreas/FRC/AccountingFinancialReporting/PCFR/Pages/Financial-Reporting-Framework.aspx</a></p><p>The AICPA anticipates issuing a final framework in the first half of 2013.</p> ()Mon, 12 Nov 2012 12:00:00 GMTTax Laws Expiring in 2012http://www.ksmcpa.com/news-blog/tax-laws-expiring-in-2012
<p><img align="right" alt="" height="168" onresize="ResizeImage(this);" sizeratio="0.6398467432950191" src="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/img/prd/eb7ffc4d-1e8a-4edc-8fc1-07f7e9b166c5/u.s.-capitol-building.jpg" style="width:261px;height:167px;padding-top:0px;padding-right:0px;padding-bottom:0px;padding-left:8px;margin-top:0px;margin-right:0px;margin-bottom:0px;margin-left:0px;border:0" title="" width="265" />With the re-election of President Obama and the Democratic majority retained in the Senate, it is now more likely that certain tax benefits and lower rates set to expire on December 31, 2012, will expire or be adjusted for higher income taxpayers. Additionally, the benefits of certain tax deductions or strategies may be curtailed for certain taxpayers after 2012 as Congress looks for ways to increase revenues with or without tax rate increases.<br /><br />What does this mean for tax planning? Although uncertainties exist, the following items should be considered &ndash; alongside careful consultations with your KSM advisor &ndash; before year-end:</p><ul><li>Accelerating income into 2012, including exercising stock options, accelerating bonus or other compensation/business receipts, recognizing capital gains and triggering passive activity capital gains</li><li>Converting regular IRAs to ROTH IRAs</li><li>Deferring capital losses</li><li>Distributing C corporation earnings and profits from current or former C corporations</li><li>Deferring business deductions/payment of payables for cash method taxpayers</li><li>Accelerating capital asset purchases to take advantage of bonus depreciation and a higher Section 179 provision</li><li>Maximizing availability of tuition credits for higher education expenses</li><li>Reviewing the tax savings associated with accelerating deductions such as charitable contributions or state tax payments that may be limited in future years</li><li>Electing to pay taxes on installment sales arising in 2012 or &quot;disposing&quot; of existing installment receivables to accelerate recognition to 2012</li><li>Reviewing business structures with carried interest considerations</li><li>Reviewing business activity groupings to minimize net passive income subject to new 2013 Medicare tax</li><li>Assessing impact of Obamacare on employee health and welfare plans</li><li>Shifting investment or passive income to family members with adjusted gross income of less than $200,000</li><li>Accelerating succession planning via sales and gifting strategies</li><li>Making large gifts outright or in trust to utilize higher gift and GST exemptions available in 2012</li><li>Establishing short-term Grantor Retained Annuity Trusts</li></ul><p>Tax laws set to expire or take affect January 1, 2013, include:</p><ul><li>The reduction of alternate minimum tax (AMT) exemption to tax year 2000 amounts of $33,750 single and $45,000 married, which will create additional taxes for many unsuspecting taxpayers.</li><li>Self-employment income and wages that exceed $200,000 single and $250,000 married will be subject to 0.9% additional Medicare tax.</li><li>A 3.8% additional Medicare tax will be imposed on higher income taxpayers on the lesser of net investment/passive income or the amount their AGI (adjusted gross income) exceeds greater than $200,000 single and $250,000 married.</li><li>Dividends will begin being taxed at ordinary rates (same rate as wages and interest) instead of the capital gain rates.</li><li>0% capital gain rates for taxpayers in the two lowest brackets (10% and 15%) will expire.</li><li>The maximum capital gain rates will increase from 15% to 20%.</li><li>The child tax credit will decrease from $1,000 per qualifying child to $500.</li><li>Itemized deduction and personal exemption phase-outs will return.</li><li>The college tax credit will reduce from a maximum of $2,500 a year per person to $1,500.</li><li>Tax rates will increase (see marginal rate table below).</li></ul><table align="center" border="1" cellpadding="5" cellspacing="1" style="width: 500px;"><tbody><tr><td colspan="7" style="text-align: center;"><strong>Rates</strong></td></tr><tr><td style="text-align: center;"><strong>2012</strong></td><td style="text-align: center;">10%</td><td style="text-align: center;">15%</td><td style="text-align: center;">25%</td><td style="text-align: center;">28%</td><td style="text-align: center;">33%</td><td style="text-align: center;">35%</td></tr><tr><td style="text-align: center;"><strong>2013</strong></td><td style="text-align: center;">15%</td><td style="text-align: center;">15%</td><td style="text-align: center;">28%</td><td style="text-align: center;">31%</td><td style="text-align: center;">36%</td><td style="text-align: center;">39.6%</td></tr></tbody></table><ul><li>Bonus depreciation will expire.</li><li>Section 179 (capital asset expensing election) will drop from $139,000 in 2012 to $25,000 in 2013.</li><li>The $5.1 million tax-free estate tax limitation will decrease to $1 million.</li></ul><p>Contact your KSM advisor for more information.</p> ()Thu, 08 Nov 2012 12:00:00 GMTIndiana Tax Court Case on Transportation Exemptionhttp://www.ksmcpa.com/news-blog/indiana-tax-court-case-on-transportation-exemption
<p>On October 30, 2012, the Indiana Tax Court issued a decision affecting public transportation companies. Indiana law provides a sales and use tax exemption on the purchase of tangible personal property directly used in providing public transportation. In <a href="http://www.in.gov/judiciary/opinions/pdf/10301201mbw.pdf" target="_blank" title="Wendt LLP v. Indiana Department of State Revenue"><em>Wendt LLP v. Indiana Department of State Revenue</em></a>, the court examined the aspects of Wendt&#39;s business that qualified for the exemption. Wendt, an Indiana-based company in the business of intrastate, interstate, and international relocation of oversized factory equipment, claimed that the exemption applied to a wide range of its business, including the tangible personal property used to:</p><ul><li>Provide quotes to prospective customers;</li><li>Disassemble the equipment to be transported and installed;</li><li>Transport the equipment;</li><li>Reassemble and re-install the transported equipment at the new location; and</li><li>Temporarily store property being transported through the process.</li></ul><p>The court took a slightly more narrow view, finding that the disassembly, transportation and temporary storage of property were all part of the exempt transportation process, but that providing quotes (sales activity) and re-installation of the transported property did not qualify for the exemption.<br /><br />While every court decision is fact-sensitive, this case generally serves to reinforce some of the underlying fundamentals of this exemption and how it has been applied for many years. Two areas worth additional attention are:</p><ol><li>The court finding that temporary warehouse storage is considered part of the exempt transportation function</li><li>The court&#39;s determination that the re-installation of transported property is outside of the exemption</li></ol><p>If your company provides public transportation services for numerous customers or operates an exempt captive company that transports primarily for its parent company, this case could impact you.</p><p>For more information, contact <a href="http://www.ksmcpa.com/donna-l-niesen" target="">Donna Niesen</a>, director in KSM&#39;s <a href="http://www.ksmcpa.com/state-local-tax" target="">State and Local Tax Practice</a>, at 317.580.2047 or <a href="mailto:dniesen@ksmcpa.com" title="dniesen@ksmcpa.com">dniesen@ksmcpa.com</a>.</p> ()Tue, 06 Nov 2012 12:00:00 GMTIRS Announces Retirement Plan Limitations for 2013http://www.ksmcpa.com/news-blog/irs-announces-retirement-plan-limitations-for-2013
<p>The Internal Revenue Service (IRS) recently announced the annual Cost-of-Living Adjustments (COLA) for retirement plans and related limitations for the 2013 tax year. Several of the following limits have changed for 2013 compared to the 2012 limits.</p><table border="0" cellpadding="0" cellspacing="0" width="100%"><tbody><tr><td>&nbsp;</td><td style="text-align: center;"><strong><u><span>2013</span></u></strong></td><td style="text-align: center; width: 15px;">&nbsp;</td><td><p align="center"><strong><u><span>2012</span></u></strong></p></td></tr><tr><td><p><strong><span>Social Security Taxable Wage Base</span></strong></p></td><td>$113,700</td><td>&nbsp;</td><td><p><span>$110,100</span></p></td></tr><tr><td><p><strong><span>Medicare Taxable Wage Base</span></strong></p></td><td><p><span>No Limit</span></p></td><td>&nbsp;</td><td><p><span>No Limit</span></p></td></tr><tr><td><p><strong><span>Compensation (Plan Limit)</span></strong></p></td><td><span>$255,000</span></td><td>&nbsp;</td><td><p><span>$250,000</span></p></td></tr><tr><td><p><strong><span>Compensation (SEP)</span></strong></p></td><td><span>$550</span></td><td>&nbsp;</td><td><p><span>$550</span></p></td></tr><tr><td><p><strong><span>Defined Benefit Limit (415)</span></strong></p></td><td><p><span>$205,000</span></p></td><td>&nbsp;</td><td><p><span>$200,000</span></p></td></tr><tr><td><p><strong><span>Defined Contribution Limit (415)</span></strong></p></td><td>$51,000</td><td>&nbsp;</td><td><p><span>$50,000</span></p></td></tr><tr><td><p><strong><span>401(k) and 403(b) Contribution Limit</span></strong></p></td><td>$17,500</td><td>&nbsp;</td><td><p><span>$17,000</span></p></td></tr><tr><td><p><strong><span>401(k) and 403(b) Catch Up Contribution Limit (over age 50)</span></strong></p></td><td>$5,500</td><td>&nbsp;</td><td><p><span>$5,500</span></p></td></tr><tr><td><p><strong><span>SIMPLE Contribution Limit</span></strong></p></td><td>$12,000</td><td>&nbsp;</td><td><p><span>$11,500</span></p></td></tr><tr><td><p><strong><span>SIMPLE Catch up Contribution Limit (over age 50)</span></strong></p></td><td>$2,500</td><td>&nbsp;</td><td><p><span>$2,500</span></p></td></tr><tr><td><p><strong><span>Highly Compensated Employee Definition (prior year)</span></strong></p></td><td>$115,000</td><td>&nbsp;</td><td><p><span>$115,000</span></p></td></tr><tr><td><p><strong><span>Maximum Deduction (% of Compensation) P/S and SEP Plans</span></strong></p></td><td>25%</td><td>&nbsp;</td><td><p><span>25%</span></p></td></tr><tr><td><p><strong><span>IRA Contribution Limit (Traditional &amp; Roth)</span></strong><span> </span></p></td><td>$5,500</td><td>&nbsp;</td><td><p><span>$5,000</span></p></td></tr><tr><td><p><strong><span>IRA Catch Up Contribution Limit (Over Age 50)</span></strong></p></td><td>$1,000</td><td>&nbsp;</td><td><p><span>$1,000</span></p></td></tr></tbody></table><div align="center"><hr align="center" noshade="noshade" size="1" width="100%" /></div><p><span>For&nbsp;questions regarding your&nbsp;retirement plan, please contact any of the members of our <a href="http://www.ksmcpa.com/employee-benefit-plans" target="">Employee Benefit Plan Services Group</a>.</span></p> ()Thu, 01 Nov 2012 12:00:00 GMTState & Local Tax Update - 10/15/12http://www.ksmcpa.com/news-blog/state-local-tax-update-10-15-12
<p><strong>Reassessment for Indiana Real Property Taxes</strong>: Indiana counties are currently wrapping up their 2012 statewide reassessments. During a reassessment year, county and township assessors are required to inspect all properties and adjust all assessed values to properly reflect market value in use. Counties were last required to reassess property in 2002; therefore, some property owners should expect significant changes as a result of the 2012 reassessment.<br /><br />Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their tax bill, it is often too late to appeal the assessed value for that year. Some counties began mailing their assessment notices this month.<br /><br />Contact your KSM advisor, or KSM property tax leader <a href="http://cl.exct.net/?qs=d3c95e85400c8718d447f1a35ee52fb7fc3c36ddc9a22677f168020534169a27" title="Chad Miller">Chad Miller</a>, as soon as you receive your Form-11. We would be happy to review the reassessed value of your commercial property to help you consider whether an appeal should be filed.</p><div style="margin: 10px 0px 6px; border-top: #ccc 1px solid">&nbsp;</div><p><strong>Indiana Updates County Income Tax Rate Notice</strong>: The Indiana Department of Revenue has updated its list of Indiana counties that have adopted county income taxes with rate changes for Carroll, Hancock, Perry and Starke counties. The county income tax rates are effective for withholding purposes for periods beginning on or after Oct. 1, 2012. The rates apply to wages paid after Sept. 30, 2012, and the tax is withheld and paid at the same time and in the same manner as the state income tax. While this list is for those counties whose income tax rates are changed and effective Oct. 1, 2012, counties can elect to change their rates Nov. 1 and Dec. 1. See <a href="http://www.in.gov/dor/reference/files/dn01.pdf" target="_blank" title="Departmental Notice #1">Departmental Notice #1</a> for current rates.<br /><br /><strong>Indiana Rules on Intangible Expense Add Back for LLC</strong>: A limited liability company (LLC) did not meet the statutory definition of an includable corporation, nor was it considered a member of an affiliated group; therefore, the intangible expenses paid, accrued and incurred by the LLC are not included in the add-back calculations provided by the statute. Ind. Code &sect; 6-3-2-20(b) requires a corporation subject to the adjusted gross income tax to add to its taxable income intangible expenses and any directly related intangible interest expenses paid, accrued, or incurred with one or more members of the same affiliated group. IRC Sec. 1504 defines an affiliated group as one or more chains of includible corporations connected through stock ownership with a common parent corporation, which is an includible corporation. The LLC is treated at the federal level as a partnership, not as a corporation, and is neither an &quot;includable corporation&quot; nor a member of the &quot;affiliated group&quot; as defined by IRC Sec. 1504. Since it is not a member of the affiliated group, the intangible expenses paid, accrued or incurred by the LLC are not included in the add-back calculations under Ind. Code &sect; 6-3-2-20. See <a href="http://www.in.gov/legislative/iac/20120926-IR-045120527NRA.xml.html" target="_blank" title="LOF 02-20110459">LOF 02-20110459</a> for details.<br /><br /><strong>California issues Guidance on Throwback Rule</strong>: The Franchise Tax Board has issued a ruling indicating that a California corporation (filing a combined return) that sells tangible personal property (TPP) in all 50 states and several foreign jurisdictions does not have to throw back TPP sales to the California sales factor when it has more than $500,000 in TPP sales in a jurisdiction because it would be taxable in such jurisdiction under Cal. Rev. &amp; Tax. Cd. &sect; 25122. See <a href="http://www.ftb.ca.gov/law/ccr/2012_3.pdf" target="_blank" title="2012-3">2012-3</a> for details of the ruling.<br /><br /><strong>California Increases Penalty for Non-filing LLCs</strong>: L. 2012, A318 (c. 313), effective Jan. 1, 2013, extends the penalty provisions of Cal. Rev. &amp; Tax. Cd. &sect; 19135 to foreign limited liability corporations. Under &sect; 19135, a penalty of $2,000 per taxable year is assessed whenever an entity is doing business in California, within the meaning of &sect; 23101, and fails to make and file a return within 60 days after the Franchise Tax Board sends the taxpayer a notice and demand to file the required tax return, unless the failure is due to reasonable cause and not willful neglect.<br /><br /><strong>California Issues Decision in <em>Gillette </em>Case</strong>: In its opinion on rehearing, the California Court of Appeal ruled that multistate taxpayers could elect to use the Multistate Tax Compact&#39;s equally-weighted three-factor formula to apportion and allocate income for state corporation franchise (income) tax purposes for the tax years at issue. Although the court had vacated its previous decision, its opinion on rehearing also concludes that the compact was a valid multistate compact, and California was bound by it and its apportionment election provision for the tax years at issue because California had not repealed former Cal. Rev. &amp; Tax Cd. &sect; 38001 et seq. and withdrawn from the compact during the period in question. Although the legal reasoning of the opinion on rehearing is substantially similar to that of the vacated decision, the opinion on rehearing includes language clarifying that legislation enacted by California after oral argument in the case repealed the Compact, effective June 27, 2012. For details of this case, see <a href="http://www.courts.ca.gov/opinions/documents/A130803A.PDF" target="_blank" title="Dkt. No. A130803A">Dkt. No. A130803A</a>.<br /><br /><strong>Iowa Issues Sales Tax Sourcing Guidance</strong>: Effective Oct. 10, 2012, The Iowa Department of Revenue has adopted new rules (Reg. 701-223.1 through 701-223.4) regarding sourcing sales of services that are taxable in Iowa under the Streamlined Sales and Use Tax Act. The new chapter defines relevant terms, clarifies and provides examples of where sale of services performed on tangible personal property should be sourced, and clarifies and provides examples of where a sale of personal care services should be sourced.<br /><br /><strong>Kentucky Offers Amnesty Program</strong>: From Oct. 1 to Nov. 30, 2012, the Kentucky Department of Revenue is offering an amnesty program to eligible taxpayers. In exchange for coming forward and paying outstanding liabilities, taxpayers will be relieved of any penalties and one-half of the interest due. More information regarding the application process and eligible taxes can be found at <a href="http://www.amnesty.ky.gov/" target="_blank" title="http://www.amnesty.ky.gov/">www.amnesty.ky.gov/</a>.<br /><br /><strong>North Carolina Rules on Responsible Person</strong>: The taxpayer, a manager of a limited liability company, was personally and individually liable for payment of the LLC&#39;s sales and use tax, penalty and interest for the period at issue because the taxpayer was a responsible person. Statutory law provides that a manager of an LLC is a responsible person for an LLC, and the manager is <u>not</u>&nbsp;required to be assigned any specific tasks to be held liable as a responsible person. In this case, the taxpayer was appointed as one of two managers of an LLC; the LLC&#39;s operating agreement specifies that the taxpayer shared the management of the LLC equally with another person; the LLC&#39;s annual report identifies the taxpayers as a manager of the LLC; and the minutes of board meetings demonstrate that the taxpayer served as one of two managers from March 2008 until he became sole manager in January 2010. Although the taxpayer contended that he did not have check-signing authority, specific financial duties assigned to managers are not relevant to a manager&#39;s status as a responsible person. In addition to being a responsible person as manager, the taxpayer was a responsible person based on his duty to pay sales tax imposed by a provision contained in the LLC&#39;s operating agreement, which required managers to file and pay the taxes for any federal, state or local tax returns required to be filed by the LLC. (George S. Goodyear, III v. N.C. Dept. of Rev., N.C. Dept. of Rev., Final Agency Decision No. 11 REV 13094, 09/18/2012.)<br /><br /><strong>Washington B&amp;O Nexus Created by Independent Contractors</strong>: An out-of-state provider of continuing professional education had nexus and was subject to business and occupation tax because its independent contractor speakers were representative third parties. The taxpayer, which did not have any employees in Washington, contracted with speakers to make presentations at live seminars for the taxpayer&#39;s customers in Washington. Nexus is created when a taxpayer is engaged in activities in Washington, either directly or through a representative, for the purpose of performing a business activity; the independent contractor speakers provided services on the taxpayer&#39;s behalf directly to the taxpayer&#39;s customers, the seminar attendees, and consequently were &quot;representative third parties.&quot; The Department of Revenue rejected the taxpayer&#39;s contention that it merely purchased services from contractors; the speakers did not perform services directly for the taxpayer, but rather, delivered the services that the taxpayer was in the business of providing. See <a href="http://dor.wa.gov/docs/rules/wtd/2012/31wtd73.pdf" target="_blank" title="Tax Determination 11-0292">Tax Determination 11-0292</a> for details.<br /><br />For more information, contact <a href="http://www.ksmcpa.com/donna-l-niesen" title="Donna Niesen">Donna Niesen</a> at <a href="mailto:dniesen@ksmcpa.com" title="dniesen@ksmcpa.com">dniesen@ksmcpa.com</a>.</p> ()Mon, 15 Oct 2012 12:00:00 GMTThe Value of Donated Property Is in the Eye of the Marketplacehttp://www.ksmcpa.com/news-blog/the-value-of-donated-property-is-in-the-eye-of-the-marketplace
<p>Nonprofit organizations often struggle with valuing noncash and in-kind donations, including the value of houses or other buildings. Whether for recordkeeping purposes or when helping donors understand proper valuation for contributed property, the task is not easy.<br /><br />Although the amount that a donor can deduct generally is based on the fair market value (FMV) of the property at the time of contribution, there is no single formula for calculating FMV for every type of gift. <a href="http://www.ksmcpa.com/documents/profitable-solutions-for-nonprofits_fall-2012.pdf" target="" title="Read more">Read more</a>.</p><p>To read the full text of our <em>Profitable Solutions for Nonprofits</em> newsletter, <a href="http://www.ksmcpa.com/documents/profitable-solutions-for-nonprofits_fall-2012.pdf" target="">go here</a>.</p> ()Thu, 11 Oct 2012 12:00:00 GMTHow to Locate Missing 401(k) Plan Participantshttp://www.ksmcpa.com/news-blog/how-to-locate-missing-401-k-plan-participants
<p>Do you know where all of all of your plan participants are? Terminated participants in a retirement plan can cause plan sponsors to incur additional time and fees, long after they are terminated, if their balance remains in the plan. With today&rsquo;s requirements for annual fee disclosures, a plan sponsor is responsible for continuing to provide terminated participants with annual disclosures and statements. Also, terminated participants with a balance drive up the participant count, which may result in increased per participant charges and even contribute to the requirement of an annual independent audit of the plan.</p><p>It is always a good idea to provide participants with paperwork to request their distribution immediately after they leave employment. If participants have a large enough balance, you will not be able to force them to take a distribution. However, smaller balances may be forced out of the plan while you still have contact with the participant.</p><p>One of the most common reasons terminated participants remain in the plan is that the plan sponsor is eventually unable to locate the participant. In this case, there are procedures to follow to help you locate the participant, document your efforts in case of failure, and handle the participant&rsquo;s remaining balance.</p><p>As a fiduciary of a retirement plan, your company has a responsibility to search for all terminated participants with a balance in the plan. Finding missing participants can be a difficult task to accomplish and it only grows more onerous with the passage of time. However, employers must make a reasonable effort to locate a participant; and the sooner you begin the process the more likely you will succeed. &nbsp;</p><p>As a first step, if mail that was sent to a terminated participant is returned as undeliverable, resend the letter/package through certified mail to create a record of your attempt to locate the participant. Also document for your records your effort to contact the participant through:</p><ul><li>Other employees who may still know how to reach them</li><li>Beneficiaries and emergency contacts listed in the plan and other company records, such as the health plan</li></ul><p>If unsuccessful in maintaining contact, below are a few additional options that may be beneficial:</p><ul><li><strong>The National Registry</strong> &ndash; This is a website that allows employers to list names of missing plan participants who have unclaimed retirement benefits. Individuals who believe they have unclaimed retirement accounts can search using their Social Security Number (SSN) for a match. If there is a match, the participant is asked to provide contact information.</li></ul><p style="margin-left: 40px;"><a href="https://www.unclaimedretirementbenefits.com/">https://www.unclaimedretirementbenefits.com/</a></p><ul><li><strong>Search Firms</strong> &ndash; There are numerous search firms who will search for participants based on a last known address and SSN. There is a fee involved for this option that will vary from company to company. Several of these search firms can be found on the Internet. This will save you from using internal resources to conduct the search.</li></ul><ul><li><strong>Internet Searches</strong> &ndash; Internet searches, including Facebook and LinkedIn, can prove to be effective. There are both free and fee-based sites. The following are free sites:</li></ul><p style="margin-left: 40px;"><a href="http://www.theultimates.com/white" target="_blank">www.theultimates.com/white</a><br /><a href="http://www.infousa.com" target="_blank">www.infousa.com</a></p><p>Note that as of August 2012, the Internal Revenue Service discontinued its letter forwarding program and no longer forwards letters on behalf on plan sponsors or administrators to missing former plan participants.</p> ()Mon, 08 Oct 2012 12:00:00 GMT2012 Gift Planning - Time Is Running Out!http://www.ksmcpa.com/news-blog/2012-gift-planning-time-is-running-out
<p>The gift, estate and generation-skipping transfer tax exemptions are currently $5.12 million for transfers made through the end of 2012. Unless Congress takes action otherwise, the exemptions revert back to $1 million in 2013. Before 2011, the gift tax exemption was only $1 million. This means that taxpayers can gift up to $5.12 million, less whatever portion of their exemption they have used in prior years, gift-tax free in 2012. For example, if a taxpayer used his $1 million gift tax exemption in prior years, he would still be able to gift up to $4.12 million in 2012, gift-tax free. The exemptions are $5.12 million per person or $10.24 million per married couple.<br /><br />Thus, <strong>now is an excellent time for taxpayers to consider making gifts</strong>. When a taxpayer makes a gift, this not only gets the value of the gifted property out of the taxpayer&#39;s estate for estate tax purposes, but it also gets the appreciation on the gifted property out of the taxpayer&#39;s estate for estate tax purposes. Plus, this opportunity may be short-lived depending on what happens to the law after 2012. If the exemption amount decreases next year, as it is scheduled to do, taxpayers will have lost an opportunity to pass wealth down to their heirs (or to trusts for their heirs) gift- and estate-tax free.<br /><br />Many taxpayers may not feel comfortable making large gifts now. Using a trust that can benefit a spouse may give them the comfort they need. However, trusts for spouses can have traps for the unwary. Alternatively, they may want to use at least some of their $5.12 million exemption, or perhaps one spouse may want to use his or her exemption even if the other spouse doesn&#39;t use any of his or her exemption.<br /><br /><strong>Taxpayers should carefully consider whether or not to use their gift tax exemptions by making gifts in 2012.</strong></p> ()Fri, 28 Sep 2012 12:00:00 GMTState & Local Tax Update - 9/17/12http://www.ksmcpa.com/news-blog/state-local-tax-update-9-17-12
<p><strong>Reassessment for Indiana Real Property Taxes</strong>: Indiana counties are currently wrapping up their 2012 statewide reassessments. During a reassessment year, county and township assessors are required to inspect all properties and adjust all assessed values to properly reflect market value in use. Counties were last required to reassess property in 2002; therefore, some property owners should expect significant changes as a result of the 2012 reassessment.<br /><br />Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their tax bill, it is often too late to appeal the assessed value for that year. Some counties began mailing their assessment notices this month.<br /><br />Contact your KSM advisor, or KSM property tax leader <a href="http://cl.exct.net/?qs=d3c95e85400c8718d447f1a35ee52fb7fc3c36ddc9a22677f168020534169a27" title="Chad Miller">Chad Miller</a>, as soon as you receive your Form-11. We would be happy to review the reassessed value of your commercial property to help you consider whether an appeal should be filed.</p><div style="margin: 10px 0px 6px; border-top: #ccc 1px solid">&nbsp;</div><p><strong>Alabama Issues New Rules on Sales Factor:</strong> Effective for tax years beginning after December 31, 2010, the Alabama Department of Revenue, has adopted Ala. Admin. Code &sect; 810-27-1-4-.09.01 and 810-27-1-4-.17 regarding the apportionment factor. The adopted rules indicate that Alabama uses a double-weighted sales factor in the three-factor apportionment formula. The rules also provide that for taxpayers with a business interest in an unincorporated entity, the apportionment formula must include the pro rate share of the unincorporated entity&#39;s factor data. In addition, the rules address the new market-based sourcing methodology used to source sales other than sales of tangible personal to Alabama. Under the act, gross receipts from sales that do not involve tangible personal property are considered to be in Alabama if the taxpayer&#39;s market for the sale is in Alabama.<br /><br /><strong>Georgia Issues Guidance on Pass Through Entity Withholding:</strong> Effective September 2, 2012, the Georgia Department of Revenue has adopted amendments to Rule 560-7-8-.34 to conform the regulation with current state law and clarify provisions. Among other changes:</p><ul><li>An entity is required to include guaranteed payments as part of its taxable income sourced to Georgia;</li><li>The term &quot;entity&quot; does not include a Subchapter &quot;S&quot; corporation that is treated as a &quot;C&quot; corporation for Georgia purposes;</li><li>Estimated tax payment dates for entities that file a composite return are made the same as for individuals;</li><li>A fiscal year entity is required to adjust its estimated payment dates and extension dates as if it were an individual filing a fiscal year return;</li><li>It is clarified that the 4% withholding is required with respect to the nonresident member&#39;s share of taxable income sourced to Georgia; and</li><li>The filing of estimated tax payments by the member does not relieve the entity from the responsibility of the withholding requirement.</li></ul><p><strong>Michigan Tribunal Rules on Discharge of Single Business Tax Under Bankruptcy </strong>: A taxpayer&#39;s assessment for a company&#39;s unpaid single business tax (SBT) as a corporate officer was not dischargeable in bankruptcy because it was a non-dischargeable excise tax under 11 U.S.C. &sect; 507(a)(8)(E). The SBTs at issue arose from the business activity of a limited liability company, of which the taxpayer was an manager or member. The return date for the taxes at issue was more than three years before the date of the filing of the taxpayer&#39;s petition in bankruptcy, which would mean the taxes would be dischargeable under 11 U.S.C. &sect; 507(a)(8)(E) unless they were an excise tax on a transaction. The SBT is a tax upon the privilege of doing business that is measured by the &quot;adjusted tax base&quot; of persons with business activity in Michigan. The SBT cannot be substantially distinguished from the Texas franchise tax, which a federal bankruptcy court has held to be a privilege tax on a transaction. In addition, a federal district court in Michigan, <em>Quiroz v. State </em>, U.S. Dist. Ct., E.D. Mich., Dkt. No. 11-CV-12672, 03/27/2012 , has held that an officer liability assessment arising from a corporation&#39;s failure to pay SBT was a debt for a non-dischargeable excise tax on a transaction under 11 U.S.C. &sect; 507(a)(8)(E). Although the Tribunal was asked to determine whether the taxpayer&#39;s officer liability fell within the scope of a federal bankruptcy discharge of 11 U.S.C. &sect; 523(a) issued by the U.S. Bankruptcy Court for the Southern District of Florida, the Tribunal found that the Florida bankruptcy court would have come to the same conclusion as the court in <em>Quiroz </em>. In addition, while the taxpayer is not the &quot;taxpayer&quot; that initially incurred the tax liability, an officer is liable for payment of the tax under Mich. Comp. Laws Ann. &sect; 211.27a(5), and so is a payer of tax (a taxpayer). The debt that the taxpayer in this case listed on his bankruptcy schedule is a debt for a tax, which the taxpayer became liable to pay by virtue of the officer liability statute.<em> <a href="http://cl.exct.net/?qs=2dc97890b272d43f855537c80f34e63b8d9cb576e77ea686ea0d8d080aadf814" title="Paul A. Henderson v. Mich Department of Treasury">Paul A. Henderson v. Mich Department of Treasury</a> </em><br /><br /><strong>New York Court Holds Metropolitan Commuter Transportation Mobility Tax Unconstitutional </strong>: On August 22, the Supreme Court for Nassau County, New York, held that the metropolitan commuter transportation mobility tax (MCTMT) is unconstitutional because the New York State Legislature did not follow proper procedures in enacting the law. In its decision, the Court held that the MCTMT was unconstitutionally passed by the legislature. Because the MCTMT was a special law that did not serve a substantial state interest, the law should have been passed with either a home rule message or by a message of necessity with a two-thirds vote of each house. Accordingly, the Court granted the municipalities&#39; motion for summary judgment. However, the New York State Department of Taxation and Finance has <a href="http://cl.exct.net/?qs=2dc97890b272d43f91430fe33638b9bdb66c87207e77c7c607bd58545317ae32" title="announced">announced</a> that the litigation has not concluded and taxpayers that have been paying the MCTMT should continue to pay and file returns. See <em>Mangano v. Silver</em>, New York Supreme Court, Nassau County, No. 14444/10, Aug. 22, 2012 for details of the decision.<br /><br /><strong>Rhode Island Kicks off Amnesty Program </strong>: From September 2, 2012, to November 15, 2012, Rhode Island will offer an amnesty program for delinquent taxpayers. The amnesty program applies to the following taxes due on or before December 31, 2011: Corporate income tax, estate tax, fiduciary income tax, personal income tax, sales and use tax, cigarette and tobacco products taxes, and employer taxes. The amnesty includes 2011 Rhode Island personal income tax returns that were due April 17, 2012. In exchange for coming forward, taxpayers will pay the full amount of overdue taxes plus 75% of any interest due, without having to pay the remaining interest and any penalty amounts due and without being subject to any other civil or criminal penalties. Taxpayers who are eligible for tax amnesty may set up a payment plan; however, the full amount of the tax and 75% of any interest due must be paid no later than December 14, 2012. For details&nbsp;visit: <a href="http://cl.exct.net/?qs=2dc97890b272d43f74373fe0bbe9c415b43705945425920d3ca5c6e43b0fc483" title="http://www.taxamnesty.ri.gov/">http://www.taxamnesty.ri.gov/</a>.<br /><br /><strong>Texas Issues Sales Tax Guidance on Cloud Computing </strong>: A company&#39;s information technology infrastructure services offered to customers in the form of web services are subject to sales and use taxes. The services, commonly referred to as &quot;cloud computing&quot; services include the ability for customers to store, retrieve and maintain content, data, applications and software on the company&#39;s servers; run applications, monitor computers and computer usage, send electronic communications, and host web domains; and copy information to sites within the company&#39;s network and route end user requests for customer data to the site that can deliver the information most quickly. The fees charged for these services, along with incidental usage fees, are taxable data processing services pursuant to Tex. Tax Code Ann. &sect; 151.0035. Advanced email software services provided by the company are taxable as telecommunications services while a service that provides customers with access to data gathered from the internet is taxable as an information service. Local taxes due on the sales of data processing and information services sold by the company are sourced to the local taxing jurisdictions in effect at the customer&#39;s Texas location. See <a href="http://cl.exct.net/?qs=2dc97890b272d43f078b4c4ff450659bab4103d11d4d1f03940c249274f986a3" title="Policy Letter Ruling 201207533L">Policy Letter Ruling 201207533L</a> for details.</p><p><br /><br /><br />&nbsp;</p> ()Mon, 17 Sep 2012 12:00:00 GMTThe Times They Are a-Changin’: Sales Tax in a Technologically Advancing Worldhttp://www.ksmcpa.com/news-blog/the-times-they-are-a-changin-sales-tax-in-a-technologically-advancing-world
<p>Cloud computing. Software as a service. Digital goods. Webhosted. Web-based. Web-enabled. Licenses. Subscriptions. Nowadays, most companies use a variety of these tools in the everyday operations of their businesses. With such advancements, it has become especially important for businesses to understand the tax ramifications that result from the buying, selling and use of these goods and services. <a href="http://www.ksmcpa.com/documents/salt-advisor_issue-2-_2012.pdf" target="_blank">Read more</a></p><p>To read the full text of the <em>State &amp; Local Tax Advisor </em>newsletter, <a href="http://www.ksmcpa.com/documents/salt-advisor_issue-2-_2012.pdf" target="_blank">go here</a>.</p> ()Thu, 13 Sep 2012 12:00:00 GMTMulti-State Taxation for Interstate Carriershttp://www.ksmcpa.com/news-blog/multi-state-taxation-for-interstate-carriers
<div>Due to shrinking budgets and deficit spending, state departments of revenue are actively searching for interstate carriers that should be filing income tax returns in their state. Some states, such as New Jersey, are impounding tractors during routine traffic stops if the officer cannot verify that the company is current on their income tax filings. Other states are reviewing fuel tax filings and cross referencing them to income tax rolls. Once a company has been flagged as a non-filer, many states will request returns be prepared for the last three to six years and the tax be paid with the potential for large interest and penalty assessments. <a href="http://www.ksmcpa.com/documents/truck-times-2012_issue-2.pdf">Read more</a><div>&nbsp;</div><div>To read the full text of the <em>Truck Times</em> newsletter, <a href="http://www.ksmcpa.com/documents/truck-times-2012_issue-2.pdf">go here</a>.</div></div><p>&nbsp;</p> ()Tue, 11 Sep 2012 12:00:00 GMTShortage of Qualified Workers is Indiana Manufacturing's Big Obstaclehttp://www.ksmcpa.com/news-blog/shortage-of-qualified-workers-is-indiana-manufacturing-s-big-obstacle
<p>Preliminary results from the 2012 edition of the Indiana Manufacturing Survey reveal that Indiana&#39;s manufacturing sector continues to recover and provide numerous reasons for optimism. Yet, this is tempered by an all-too-familiar refrain: the lack of availability of trained workers is preventing a more robust recovery and holding the state back from what could be an even&nbsp;brighter future in manufacturing.</p><p>In a financial sense, Indiana manufacturers have shaken off much of the effects of the recent &ldquo;Great Recession.&quot; A plurality of Hoosier manufacturers in the survey now regard their company&#39;s financial performance as &ldquo;healthy&quot; (43 percent), while 42 percent consider their performance &quot;stable,&quot; and only 15 percent describe their situation as &quot;challenged.&quot; These findings represent a marked improvement over last year, when 46 percent of respondents described their financial condition as &quot;challenged,&quot; 30 percent viewed it as &ldquo;stable,&quot; and just 23 percent considered their financials to be &ldquo;healthy.&quot;&nbsp;<br /><br />The improved financial outlook is accompanied by a renewed focus on long-term goals and strategies. Notably, survey participants are boosting capital investment by an average rate of almost 18 percent, up four percent over last year&#39;s healthy 14-percent increase. This capital investment reflects more aggressive business strategies, with 66 percent of respondents pursuing increased investment in areas essential to revenue growth and 15 percent increasing investment across the entire company, while only 19 percent of respondents remain focused on cost cutting. These figures contrast markedly with last year, when cost cutting was the dominant strategy, and barely 5 percent of respondents were aggressively investing on a company-wide basis.&nbsp;<br /><br />As the improved financial performance and the renewed emphasis on capital investment suggest, the recovery of Indiana manufacturers is rooted in higher capacity utilization, which increased to 74 percent, up from 64 percent in 2011. At the same time, Hoosier manufacturers are reporting fewer customer complaints and late deliveries, along with improving customer satisfaction and product quality.&nbsp;<br /><br />The most popular approach to process improvement remains &quot;lean&quot; methods, with more than 70 percent of Hoosier factories featuring it as part of their overall production strategy, while automation continues to dominate everything from fabrication to inspection on the shop floors. In fact, 83 percent of respondents believe their production efficiency, in terms of material and energy consumption, was either the same or better than their industry peers.</p><p>There is also good news for Indiana in terms of retaining and attracting manufacturing. Only four percent of Hoosier manufacturers plan on relocating or &quot;offshoring&quot; any manufacturing outside the United States between now and 2013. Conversely, 13 percent anticipate relocating or &quot;onshoring&quot; manufacturing back to the United States by the end of 2013. Another 13 percent plan to open a new manufacturing facility in Indiana within the next two years, and each of these new factories is expected to employ between 30 and 80 workers. Indiana&#39;s strongest attraction in regards to manufacturing remains its central location, modest cost of living, and outstanding transportation network.<br /><br />At least one major issue, however, still looms on the horizon. For the first time in the history of this survey, human resource development (i.e., workforce training) overshadowed capital investment, information technologies, and improving organizational structures and processes as the top concern of Indiana manufacturers. In fact, 85 percent of the survey respondents believe the biggest obstacle to sustained growth in Indiana manufacturing is the shortage of qualified workers. As one manufacturer lamented, &quot;We can&#39;t seem to take enough time to train new employees.&quot; Some manufacturers report making extensive use of overtime as a near-term solution, while others view increasing automation as the only way to move forward given the shortage of qualified workers. Much is at risk in this regard; future editions of this study will no doubt reveal if Indiana&#39;s businesses, educators and government can keep working together to solve this critical workforce issue.<br /><br />This annual survey is a joint collaboration between Katz, Sapper, &amp; Miller, LLP, Conexus Indiana, the Indiana Manufacturers Association, and Indiana University&#39;s Kelley School of Business. The survey remains open until September 15, and any Indiana manufacturers and distributors interested in participating are welcome to do so by visiting the&nbsp;<a href="https://iu.qualtrics.com/SE/?SID=SV_a4AAdwZf09cJn7K" target="_blank">2012 Indiana Manufacturing Survey site</a>. An executive summary of the survey findings will be released later in 2012.</p> ()Wed, 05 Sep 2012 12:00:00 GMTHave You Considered an Automatic Enrollment Feature for Your 401(k) Plan?http://www.ksmcpa.com/news-blog/have-you-considered-an-automatic-enrollment-feature-for-your-401-k-plan
<p>Do you want to offer a retirement plan that provides a high level of employee participation and makes it easy for you to withhold employee contributions and select the investments for those contributions? Do you currently have a plan that fails to meet its annual non-discrimination testing requirements? If so, then you may want to consider an automatic enrollment feature for your 401(k) plan.</p><p>Approximately 30 percent of eligible employees do not participate in their employer&#39;s 401(k) plan. Many employees are intimidated by their employer&rsquo;s 401(k) plan and all the decisions (contributions, investments, etc.) needed to participate. Whether you already have a 401(k) plan or are considering one, an automatic enrollment feature offers the following advantages:</p><ul><li>Increased plan participation &nbsp;</li><li>Allows for the certain investments if employees do not select their investments</li><li>Simplifies the selection of investments appropriate for long-term savings for participants</li><li>Helps employees begin saving for their future</li><li>Offers significant tax advantages (including deduction of employer contributions and deferred taxation on contributions and earnings until distribution)</li><li>Permits distributions to employees who opt out of participation in the plan within the first 90 days</li></ul><p>A <strong>basic automatic enrollment 401(k) plan</strong> must state that employees will be automatically enrolled in the plan, unless they elect otherwise, and must specify the percentage of an employee&#39;s wages that will be automatically deducted from each paycheck for contribution to the plan. The document must explain that employees have the right to elect not to have salary deferrals withheld or to elect a different percentage to be withheld.</p><p>An <strong>eligible automatic contribution arrangement (EACA<em>)</em></strong> is similar to the basic automatic enrollment plan, but has specific notice requirements. An EACA can allow automatically enrolled participants to withdraw their contributions within 30 to 90 days of the first contribution.</p><p>A <strong>qualified automatic contribution arrangement (QACA)</strong> is a type of automatic enrollment 401(k) plan that automatically passes certain kinds of annual required testing. The plan must include certain required features, such as a fixed schedule of automatic employee contributions, employer contributions, a special vesting schedule, and specific notice requirements.</p><p><strong><u>Disclosure Requirements</u></strong></p><p>Employers must notify employees who are eligible to participate in the plan about certain benefits, rights and features. Employees must receive an initial notice prior to automatic enrollment in the plan and receive a similar notice annually.&nbsp;</p><p>The notice should include information about the automatic contribution process, including the opportunity to elect out of the plan. In addition, the notice must describe the default investment used by the plan, the participants&#39; right to change investments, and where to obtain information about other investments offered by the plan.</p><p>An annual notice must be provided to participants and all eligible employees at least 30 days, but not more than 90 days, prior to the beginning of each subsequent plan year.</p><p>If the participant, after receiving the initial or annual notice, does not provide investment direction, the participant is considered to have decided to remain in a default investment.</p><p><strong><u>Participation</u></strong></p><p>Employees are automatically enrolled in the plan and a specific percentage will be deducted from each participant&#39;s salary unless the participant opts out or chooses a different percentage.</p><p><strong><u>Contributions</u></strong></p><p><strong>Basic and Eligible Automatic Enrollment 401(k) Plans</strong> &ndash; As with any 401(k) plan, in addition to employee contributions, you decide on your business&#39; contribution (if any) to participants&#39; accounts in your plan. If employers decide to make contributions to an automatic enrollment 401(k) plan for employees, there are additional options. Employers can match the amount their employees decide to contribute (within certain limits), or contribute a percentage of each employee&#39;s compensation (called a nonelective contribution) &ndash; or both. Employers have the flexibility of changing the amount of matching and nonelective contributions each year, according to business conditions.</p><p><strong>Qualified Automatic Contribution Arrangements </strong>&ndash; If a plan is set up as a QACA with certain minimum levels of employee and employer contributions, it is exempt from the annual testing requirement that applies to a traditional 401(k) plan. The initial automatic employee contribution must be at least three percent of compensation. Contributions may have to automatically increase so that, by the fifth year, the automatic employee contribution is at least six percent of compensation.</p><p>The automatic employee contributions cannot exceed 10 percent of compensation in any year. The employee is permitted to change the amount of his or her employee contributions or choose not to contribute, but must do so by making an affirmative election.</p><p>The employer must at least 1) make a matching contribution of 100 percent for salary deferrals up to one percent of compensation and a 50 percent match for all salary deferrals above one percent, but no more than six percent of compensation; or 2) make a nonelective contribution of three percent of compensation to all participants.</p><p><strong>Contribution Limits</strong> &ndash; Employees can make salary deferrals of up to $17,000 for 2012. This includes both pre-tax employee salary deferrals and after-tax designated Roth contributions (if permitted by the plan). An automatic enrollment 401(k) plan can allow catch-up contributions of $5,500 per year for 2012 for employees age 50 and over.</p><p><strong><u>Vesting</u></strong></p><p>Automatic employee contributions are immediately 100 percent vested.</p><p>Employer contributions are vested according to the plan&#39;s vesting schedule. However, the required employer contributions under a QACA must be fully vested by the time an employee has completed two years of service.</p><p><strong><u>Nondiscrimination</u></strong></p><p>Basic automatic enrollment 401(k) plans and most EACAs are subject to annual testing to ensure the amount of contributions made on behalf of rank-and-file employees is proportional to contributions made on behalf of owners and managers. Automatic enrollment typically increases participation, thereby making it more likely that a plan will pass the test. Automatic enrollment 401(k) plans set up as QACAs are not subject to this annual testing.</p><p><strong><u>Investing the Contributions</u></strong></p><p>You can automatically invest employee contributions in certain default investments that generally offer high rates of return over the long term and provide a greater opportunity for employees to save enough money to take them through retirement. If carried out properly, employers can limit liability as plan fiduciary for any automatic enrollment 401(k) plan losses that are a result of investing participants&#39; contributions in these default investments. Note that employers are still responsible for prudently selecting and closely monitoring these default investments. There are conditions to obtain this relief from liability:</p><ul><li>Plan sponsors place the participant&#39;s contributions in certain types of investments.</li><li>Before his or her first contribution is deposited, the participant receives a notice describing the automatic enrollment process; a similar notice is sent annually thereafter.</li><li>The participant does not provide investment direction.</li><li>The plan passes along to the participant material related to the investment.</li><li>The participant is given the opportunity periodically to direct his or her investments from the default investment to a broad range of other options.</li></ul><p><strong>Qualified Default Investment Alternatives</strong> &ndash; You can choose from four types of investment alternatives for employees&#39; automatic contributions, called qualified default investment alternatives, or QDIAs. Three alternatives are diversified to minimize the risk of large losses and provide long-term growth. They are:</p><ul><li>A product with an investment mix that changes asset allocation and risk based on the employee&#39;s age, projected retirement date, or life expectancy (for example, a lifecycle fund);</li><li>A product with an investment mix that takes into account a group of employees <strong>as a whole</strong> (for example, a balanced fund); and</li><li>An investment management service that spreads contributions among plan options to provide an asset mix that takes into account the individual&#39;s age, projected retirement date or life expectancy (for example, a professionally managed account).</li></ul><p>There is an alternative that allows plans to invest in capital preservation products, such as money market or stable value funds, but <strong>only for the first 120 days after the participant&#39;s first automatic contribution</strong>. This option can be used only in EACAs that permit employees to withdraw their automatic contributions and earnings between 30 and 90 days (as specified in the plan) after the participant&#39;s first automatic contribution. Before the end of the 120-day period, if you receive no direction, you must redirect the participant&#39;s contributions in the capital preservation product to one of the long-term investments mentioned above.</p><p>Note that you do not have to select a QDIA for your plan. You may find that other default investment alternatives would be more appropriate for your employees.</p><p><strong><u>Distributing the Contributions</u></strong></p><p>Employees may not want to participate in the company retirement plan. If employers want to allow participants to withdraw their contributions within 30 to 90 days of the first contribution, your plan document must provide for this option and be set up as an EACA. Any distributed amounts, including earnings, are treated as taxable income in the year distributed. The distribution is reported on a Form 1099-R and are not subject to the 10 percent early withdrawal tax.</p><p>If an employee decides to withdraw investments within 30 to 90 days of the first contribution, a plan cannot impose restrictions, fees or expenses beyond standard fees for services, such as investment management and account maintenance. Further, participants should not be subject to penalties, such as surrender charges, liquidation fees, or market value adjustments.</p><p>For&nbsp;questions regarding your&nbsp;retirement plan, please contact any of the members of our <a href="http://www.ksmcpa.com/employee_benefit_plans.html" target="">Employee Benefit Plan Services Group</a>.</p> ()Fri, 24 Aug 2012 12:00:00 GMTState & Local Tax Update - 8/21/12http://www.ksmcpa.com/news-blog/state-local-tax-update-8-21-12
<p><strong>Reassessment for Indiana Real Property Taxes</strong>: Indiana counties are currently wrapping up their 2012 statewide reassessments. During a reassessment year, county and township assessors are required to inspect all properties and adjust all assessed values to properly reflect market value in use. Counties were last required to reassess property in 2002; therefore, some property owners should expect significant changes as a result of the 2012 reassessment.<br /><br />Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their tax bill, it is often too late to appeal the assessed value for that year. Some counties began mailing their assessment notices this month.<br /><br />Contact your KSM advisor, or KSM property tax leader <a href="http://cl.exct.net/?qs=d3c95e85400c8718d447f1a35ee52fb7fc3c36ddc9a22677f168020534169a27" title="Chad Miller">Chad Miller</a>, as soon as you receive your Form-11. We would be happy to review the reassessed value of your commercial property to help you consider whether an appeal should be filed.</p><div style="border-top: 1px solid #ccc; margin: 10px 0 6px;">&nbsp;</div><p><strong>Indiana Supreme Court Rules on Sales Factor Sourcing: </strong>The Indiana Supreme Court has held that a brewery and malt beverage distribution company&#39;s sales to Indiana customers, who used common carriers to pick up merchandise in the company&#39;s Ohio facility for delivery to Indiana, are in fact Indiana sales; accordingly, these sales are subject to the state&#39;s adjusted gross income tax. The Court further held the Tax Court&#39;s determination that an example included in Ind. Admin. Code &sect; 3.1-1-53 operated to exempt the company from Indiana tax on income from sales of goods delivered by common carrier to Indiana customers was erroneous since the example was not a rule and did not have the force of law. See <em><a href="http://www.in.gov/judiciary/opinions/pdf/07261202MM.pdf" title="Indiana Department of Revenue v. Miller Brewing Company">Indiana Department of Revenue v. Miller Brewing Company</a></em> for details of the decision.<br /><br /><strong>Alabama Issues Sales Tax Nexus Regulation:</strong> The Alabama Department of Revenue has adopted new rule <a href="http://www.revenue.alabama.gov/salestax/Rules/6290_01.html" title="810-6-2-.90.01">810-6-2-.90.01 </a>, Seller&#39;s Responsibility to Collect and Pay State Sales Tax and Seller&#39;s Use Tax, effective July 31, 2012. The new rule makes clear that, under certain conditions, an out-of-state seller is engaged in-state in the business of selling tangible personal property at retail and is required to register with the Department for a sales tax license and collect /remit sales tax on all sales made within Alabama. The new rule tracks the language of Ala. Code &sect; 40-23-190, which indicates that actions/activities of related parties can create substantial nexus for an out-of-state seller.<br /><br /><strong>California <em>Gillette </em>Decision Vacated:</strong> On Aug. 9, 2012, the California Court of Appeal has, &quot;on its own motion and for good cause,&quot; vacated its previous decision in the<em> Gillette</em> case and ordered a rehearing to decide whether California can require multistate taxpayers to use the double-weighted sales factor formula to apportion their net business income for corporation income tax purposes only if California repeals its Multistate Tax Compact provision, which allows taxpayers an option to use the equally weighted UDITPA apportionment formula.<br /><br /><strong>Michigan Tax Tribunal Rules on Rolling Stock Exemption: </strong>The taxpayer was not entitled to a &quot;rolling stock&quot; exemption for parts that were affixed to its trucks or trailers after the date that the trucks or trailers were purchased. The taxpayer is an interstate motor carrier who purchased certain parts - auxiliary power units, bunk heaters, and GPS systems - that were not affixed to the trucks or trailers at the time the taxpayer purchased the trucks and trailers. The sales and use tax exemptions for rolling stock used in interstate commerce only exempt &quot;parts&quot; that are affixed to a truck or trailer. Under the sales tax exemption, a part that is affixed to a truck at the time of purchase is exempt; however, if a person purchases a part that is not affixed to a truck or trailer, it is taxable. Since the taxpayer affixed the parts after acquiring the trucks and trailers, the parts were not &quot;affixed to&quot; a truck or trailer at the time they were used or consumed in Michigan. Thus, the parts were taxable. See <em><a href="http://www.dleg.state.mi.us/ham/tax/pdf/decisions/sales/410946.pdf" title="MLT, Inc. v. Michigan Department of Treasury">MLT, Inc. v. Michigan Department of Treasury</a></em> for details of the decision.<br /><br /><strong>Utah Income Tax Nexus Regulation Amended:</strong> <a href="http://www.rules.utah.gov/publicat/bulletin/2012/20120601/36170.htm" title="Utah Admin. R. R865-6F-6">Utah Admin. R. R865-6F-6</a> has been amended to reflect current policy, as a result of case law and amendments to the Multistate Tax Commission rule, to indicate that delivery of goods in a seller&#39;s vehicle no longer creates nexus for corporation income or franchise tax purposes.</p> ()Tue, 21 Aug 2012 12:00:00 GMTProperty Tax Reassessment: Property Owners Bewarehttp://www.ksmcpa.com/news-blog/property-tax-reassessment-property-owners-beware
<p>2012 is a real estate tax reassessment year for Indiana real property taxes. This means that every parcel of property in the state will be examined by a county assessor to determine if the assessed value of the property should be increased. Considering the last Indiana property tax reassessment took place 10 years ago (in 2002), <strong>the Indiana assessment of property on thousands of parcels of commercial property across the state are expected to increase by the time reassessment is complete</strong>.<br /><br />With this in mind, the first thing a property owner should do when they receive the Form 11 notice of assessment is to look at the assessed value and ask, &quot;Could I sell my property for this price?&quot; If the answer is &quot;no,&quot; then it is possible that the property may be over-assessed. In this case, <a href="http://cl.exct.net/?qs=7d07b0b2969887de03b99115833a34b7fa1e5648b2892225b71e0f594c7bd140" title="KSM's property tax calculator">KSM&#39;s property tax calculator</a> will estimate the amount of property taxes you may save by filing an appeal.<br /><br />KSM&#39;s property tax leader <a href="http://cl.exct.net/?qs=7d07b0b2969887deb2ba4ff3c67d87b56ffcb746745cdfb25fdaedfbf0d4fbd8" title="Chad Miller">Chad Miller</a> has more than 12 years of experience in dealing with Indiana&#39;s difficult assessment system. Prior to joining KSM, Chad worked as the lead commercial assessor for one of the largest business corridors in the state. As a result, Chad has witnessed firsthand just about every argument an assessor or taxpayer can make for or against an Indiana property tax appeal. Since coming to KSM, Chad and his team have used this experience to lower the Indiana real property taxes for our clients, reducing their assessed value by more than $204,000,000. And that is just in the first six months in 2012.<br /><br />If you are interested in a free review of your property&#39;s assessed value to determine if an appeal makes sense, please contact Chad at 317.580.2058 or <a href="mailto:cmmiller@ksmcpa.com" title="cmmiller@ksmcpa.com">cmmiller@ksmcpa.com</a>.</p> ()Wed, 15 Aug 2012 12:00:00 GMTIRS Issues New Rules Under 263(a)http://www.ksmcpa.com/news-blog/irs-issues-new-rules-under-263-a
<p>On Jan. 1, 2012 new rules became effective regarding when to deduct or capitalize amounts paid to acquire, produce or improve tangible property. These new rules will affect all taxpayers that acquire, produce or improve tangible property.<br /><br />The question of when to deduct or capitalize amounts paid to acquire, produce or improve tangible property is frequently a point of disagreement between taxpayers and the Internal Revenue Service (IRS). Since 2004 the IRS has been developing guidance intended to reduce controversy related to this question. After issuing and withdrawing proposed regulations under &sect;1.263(a) in 2006 and 2008, the IRS in December 2011 issued yet another round of temporary and proposed regulations, with &sect;1.263(a)-1T providing general rules for capital expenditures, &sect;1.263(a)-2T providing rules for amounts paid for the acquisition or production of tangible property, and &sect;1.263(a)-3T providing rules for amounts paid for the improvement of tangible property. Also affected are guidelines under Regulations &sect;1.162-3 regarding materials and supplies and other regulations indirectly affected by changes to Regulations &sect;1.263(a). These regulations are effective on Jan. 1, 2012 and will expire on Dec. 23, 2014 if not made final.<br /><br />&sect;1.162-4T of the temporary regulations states that a taxpayer may deduct amounts paid for repairs and maintenance to tangible property if the amounts paid are not otherwise required to be capitalized. &sect;1.263(a)-1T provides that no deduction is allowed for (1) any amount paid for new buildings or for permanent improvements or betterments made to increase the value of any property or estate, or (2) any amount paid in restoring property or in making good the exhaustion thereof for which an allowance is or has been made. The ongoing dilemma for taxpayers has been the application of these rules to business activity. What constitutes an &ldquo;incidental&rdquo; repair? What is &ldquo;maintenance&rdquo;? How does one discern when an asset has increased in value or had its useful life extended?<br /><br />The temporary regulations generally divide asset types into (1) buildings and structural components thereof, and (2) assets other than buildings and structural components thereof (i.e., everything else). The temporary regulations further categorize expenditures into (1) amounts paid to produce or acquire tangible property and (2) amounts paid to improve tangible property. Underlying any analysis of whether to deduct or capitalize an expenditure is the concept of the &ldquo;unit of property&rdquo; (UOP).&nbsp;<br /><br />In the case of property other than buildings, the UOP for real and personal property includes all functionally interdependent components of the property. Components are functionally interdependent if placing one component in service depends upon placing the other component in service. For example, a tractor trailer in its entirety (inclusive of all components such as the motor, the cab, the transmission, the tires, etc.) is the unit of property. In the case of buildings, the UOP concept is clarified and expanded to separately consider important functional systems of a building.&nbsp;<br /><br />Under the new regulations, the building UOP consists of (1) the building and structural components; (2) heating, ventilation and air conditioning systems; (3) plumbing systems; (4) electrical systems; (5) all escalators; (6) all elevators; (7) fire protection and alarm systems; (8) security systems; (9) gas distribution system, and; (10) any other system defined in published guidance. This is a significant change compared to previously issued proposed regulations, given that under prior guidance taxpayers treated the entire building, inclusive of the now separately identified systems, as a single unit of property. For example, under prior guidance an expenditure related to heating, ventilation, and air conditioning (HVAC) systems may have been deducted based on the analysis that the UOP, the building, was not improved. Now, the analysis must look at only the HVAC system as the UOP, in which case the position for deducting or capitalizing the expenditure may change.<br /><br />Temporary regulations under &sect;1.263(a)-2T regarding the acquisition or production of property retain most generally understood rules regarding capitalization of expenditures. Expenditures directly or indirectly incurred that result in the production or acquisition of a UOP must be capitalized. Amounts paid to move and reinstall a UOP already placed in service by the taxpayer are generally not amounts paid to acquire or produce a unit of property. All work performed on a UOP prior to the date placed in service is required to be capitalized. In general, all expenditures that facilitate the acquisition or production of real or personal property, such as permitting or title searches, must be capitalized.<br /><br />The temporary regulations continue to provide a&nbsp;<i>de minimis</i>&nbsp;rule regarding the amounts paid to acquire or produce tangible property (e.g., deducting amounts paid under $500). However, the general rule prohibiting a distortion of income is replaced with a bright-line ceiling rule. Taxpayers may not deduct otherwise capital expenditures in excess of the lesser of 0.1 percent of the taxpayer&rsquo;s gross receipts for the tax year, or 2 percent of the taxpayer&rsquo;s total depreciation and amortization for the tax year. Additionally, taxpayers are eligible to use a&nbsp;<i>de minimis</i>&nbsp;rule only if they have an &ldquo;applicable financial statement&rdquo; (i.e., an audited financial statement).<br /><br />Acquired materials and supplies are discussed under the temporary regulations. Materials and supplies that are incidental (for which no inventories or records of consumption are maintained) are deductible in the year purchased. Materials and supplies that are non-incidental are not deductible until the year in which they are used or consumed. In general, materials and supplies include property acquired to maintain, repair, or improve a unit of tangible property owned, leased or serviced by the taxpayer and that are not acquired as part of any single unit of property. Examples might include air filters for use in a building&rsquo;s HVAC system, or brake pads for use on a tractor trailer. The proposed regulations add descriptions of material and supplies to include fuel, lubricants, water and similar items reasonably expected to be consumed in 12 months or less, beginning when used in the taxpayer&rsquo;s operations.<br /><br />Proposed regulations under &sect;1.263(a)-3T address amounts paid to improve tangible property. In general, amount paid related to a UOP already in service that (1) result in a betterment to the UOP; (2) restores the UOP; or (3) adapts the UOP to a new or different use must be capitalized. The application of these standards<span style="letter-spacing: -0.05pt">&nbsp;</span>to amounts paid will likely remain a source of contention between taxpayers and the IRS, but the temporary regulations provide numerous examples of typical transactions and their treatment under the new rules. Of particular note are changes to regulations that specifically allow the disposition of structural components of a building or building systems. This will allow the adjusted basis of the retired component (e.g., an old roof) to be recovered when replaced.&nbsp;<br /><br />The temporary regulations will dispense of the plan of rehabilitation doctrine, which required that otherwise deductible repairs or maintenance be capitalized if performed in conjunction with a larger remodeling or construction project. Retailers and other taxpayers whose buildings or other physical premises are subject to periodic refreshing are given guidance, via examples, on when such costs may be deducted. Taxpayers will still lack bright-line tests that provide clear guidance in such circumstances, so the facts and circumstances of each project must be analyzed. Any expenditure incurred to improve a material condition or defect in property that existed prior to acquisition, or which arose during production, must be capitalized regardless of whether the taxpayer was aware of the problem.<br /><br />The temporary regulations provide a routine maintenance safe harbor for tangible property other than buildings or building systems. Routine maintenance is a recurring activity and expenditure related to a UOP that a taxpayer expects to perform as a result of the taxpayer&rsquo;s use of the property. The activity must keep (rather than put) the UOP in its ordinarily efficient operating condition. An activity is considered routine only if the taxpayer reasonable expects to perform the activities more than once during the class life of the UOP.<br /><br />The temporary regulations under &sect;1.263(a) are far reaching and the discussion above serves to touch on many, but not all, key points that taxpayers should understand when determining whether to capitalize or deduct an expenditure. Taxpayers determining whether to deduct or capitalize expenditures should refer to these temporary regulations, the examples provided, and their KSM advisor.</p> ()Wed, 15 Aug 2012 12:00:00 GMTBuy Here - Pay Here Industry Snapshot: Issues and Challenges Affecting Dealershttp://www.ksmcpa.com/news-blog/buy-here-pay-here-industry-snapshot-issues-and-challenges-affecting-dealers
<p>This snapshot, brought to you by Katz, Sapper &amp; Miller&rsquo;s <a href="http://www.ksmcpa.com/buy-here-pay-here" target="_blank">Buy Here &ndash; Pay Here (BHPH) Services Group</a>, summarizes issues and challenges gleaned from recently held BHPH automobile dealer conferences and their current and future impact on the BHPH market.</p><p><strong>Insurance/Warranty Sales </strong>&ndash; Many dealers are considering or already offering a variety of after-market products such as auto warranty/extended service contracts (separate or embedded); collateral asset protection for leasing; GAP insurance, etc. As car sale margins decline, additional revenue sources are becoming increasingly important. It is imperative that these operations are structured in a way that complies and takes advantage of the relevant provisions of the tax law. Offering such products while providing valuable protection can provide additional revenue with minimal cost. Whether you already offer such products or will begin anew, analyzing and considering changes to your insurance products offered with each sale is an opportunity to increase profit and lower taxes.<br /><br /><strong>Capital Sources Loosening </strong>&ndash; In recent years the number of lenders who attended and exhibited at BHPH automobile dealer conferences had declined sharply. In 2012, the amount of lender exhibitors increased; discussion among BHPH owners shows that opportunities for capital are becoming more prevalent. All dealers who have had capital shortages in the past and are performing strongly should consider capital opportunities in the BHPH market.&nbsp;</p><p><strong>Inventory Shortages </strong>&ndash; Dealers are continuing to struggle to find appropriate automobiles for resale. According to industry experts, this problem will persist for several more years due to increased demand and recent decreases in the production of new vehicles. Dealers need to be creative and look to adopt new methods of acquiring inventory including utilizing such options as classified ads/for sale by owner, Craig&#39;s List, eBay, and other electronic sources.<br /><br /><strong>Fraud </strong>&ndash; With the increased usage of electronic information and the availability of software applications that make it easy to reproduce and modify electronic information, dealers are seeing a rise in fraud. Dealers should examine their internal controls on a regular basis to make sure that they have adequate controls in place to detect and prevent fraud.<br /><br /><strong>Consumer Financial Protection Bureau (CFPB) </strong>&ndash; There has been much discussion in the BHPH industry concerning the newly formed CFPB. The CFPB is still in the start-up and fact finding phase, but it has been ramping up quickly and hiring many staffers. There is great speculation as to the type of regulation that will come out of the CFPB, but little doubt of increased regulation on the BHPH industry. Dealers should continue to monitor the progress of the CFPB, so as to quickly adapt to any new regulation.<br /><br /><strong>Community Involvement and Customer Relationships</strong> &ndash; With the rise in activity from the CFPB and increased competition, dealers are finding it beneficial to become more involved in and make contributions to their community. Additionally, they are finding the need to be more proactive in creating long lasting relationships with their customers. It is important that the community has a positive perception of the BHPH industry, recognizes the role that dealers play in their community, and understands it is a benefit to have these types of businesses in their neighborhoods. Taking the time and effort to create relationships with customers has shown to increase sales via returning customers, assist with collections, and help customers reestablish themselves in society.<br /><br /><strong>Leasing </strong>&ndash; Leasing continues to be a hot topic in the BHPH industry. There are several advantages to a Lease Here - Pay Here model over a BHPH model, but the largest roadblock for dealers looking to convert continues to be their lending sources. Considering this is a relatively new topic in the BHPH industry, lenders are finding it difficult to get comfortable with the leasing model and are taking a hard look into understanding its benefits. Leasing appears to be gaining more acceptance in the lending community, however, which is a great sign for those dealers wanting to make the switch.<br /><br />To further discuss any of the items above or learn more about how Katz, Sapper &amp; Miller can help your dealership, please contact <a href="http://www.ksmcpa.com/jeffrey-d-taylor" target="_blank">Jeff Taylor</a> or <a href="http://www.ksmcpa.com/kevin-m-sullivan" target="_blank">Kevin Sullivan</a>.</p><p><br /><br /><br />&nbsp;</p> ()Tue, 07 Aug 2012 12:00:00 GMTPatient Protection and Affordable Care Acthttp://www.ksmcpa.com/news-blog/patient-protection-and-affordable-care-act
<p>The U.S. Supreme Court recently announced its decision on the constitutionality of the Patient Protection and Affordable Care Act of 2010. The court ruled that a substantial portion of the act was constitutional, including the additional Medicare taxes to be imposed on certain individuals effective Jan. 1, 2013. The following is a summary of the new Medicare tax provisions as of Jan. 1, 2013.</p><p><strong><u>Unearned Income Medicare Tax&nbsp;</u></strong><br /><br />Effective Jan. 1, 2013, certain individuals, trusts and estates will be required to pay a 3.8 percent Medicare tax on their share of net investment income. Net investment income includes interest, dividends, royalties, annuities, rents, passive trade or business activities, and capital gains reduced by any expenses related to the investment income.</p><p>For individuals, the additional Medicare tax may be imposed against you if your modified adjusted gross income exceeds of the following income amounts:</p><ol><li>Married Filing Joint and Surviving Spouses &mdash; $250,000</li><li>Married Filing Separate &mdash; $125,000</li><li>Single and Head of Household &mdash; $200,000</li></ol><p>The tax will apply to the lessor of the net investment income or total modified adjusted gross income in excess of the threshold amounts listed above.<br /><br />Income from nonpassive trade or business activities will not be considered investment income for purposes of the Unearned Income Medicare Tax. For example, real estate professionals would have their real estate-related income exempt from the net investment income definition.<br /><br />The unearned income of dependent children who are taxed at their parents&rsquo; income tax rate will not be subject to the tax unless such child&rsquo;s income exceeds $200,000.<br /><br /><strong><u>High Income Medicare Tax </u></strong><br /><br />Effective Jan. 1, 2013, individuals will be required to pay a 0.9 percent Medicare tax on wages and self-employment income in excess of the following amounts:</p><ol><li>Married Filing Joint and Surviving Spouses &mdash; $250,000</li><li>Married Filing Separate &mdash; $125,000</li><li>Single and Head of Household &mdash; $200,000</li></ol><p>The tax will apply to the amount of wages and self-employment income in excess of the threshold amounts listed above. Furthermore, the additional 0.9 percent Medicare tax on a joint return is determined by the combined wages and self-employment income of both taxpayers. Employers will be responsible for withholding the additional 0.9 percent only for those employees who earn wages in excess of $200,000 from such employer.</p><p>If you are filing a married filing joint tax return with combined wages and self-employment income in excess of $250,000, you may not be able to rely only on your withholdings to cover the additional 0.9 Medicare tax, and you may need to account for all or a part of the additional tax in determining your responsibility to make quarterly estimated tax payments.<br /><br />Income from partnerships, in which the partner&rsquo;s share of income is subject to self-employment tax, is included in the calculation of the taxpayer&rsquo;s earned income subject to the High Income Medicare tax. However, flow-through earnings from S corporations are not subject to the High Income Medicare tax.<br /><br /><strong><u>Planning Opportunities </u></strong></p><ol><li>Unearned Income Medicare Tax
<ul><li>Consider recognizing investment income, specifically capital gains, in 2012 instead of waiting until 2013. Recognition of capital gains in 2012 may allow you to avoid the 3.8 percent additional tax and have its gain taxed at the lower capital gain rate, which is currently set to increase to 20 percent as of Jan. 1, 2013.</li><li>Determine if you are passive or active in your investment activities. All passive activities should be reviewed to determine if you can be classified as active. A review of the passive activity rules is vital to determine if you are considered a passive or active investor in the trade or business, specifically the real estate industry.</li><li>Consider grouping similar activities as one activity and determine if you are considered active in the activity.</li><li>Consider potential change in investment strategy. Consider investments that result in tax exempt income, tax deferred income or non-dividend paying growth stocks.</li><li>In 2013 and beyond, consider the utilization of installment sales as a way to defer the recognition of income from property sales. For 2012 installment sale transactions that result in capital gains, consider electing out of the installment sale method and recognize 100 percent of the capital gain as it would be taxed at the lower 15 percent rate and avoid the 3.8 percent additional tax.<br />&nbsp;</li></ul></li><li>High Income Medicare Tax
<ul><li>Consider recognizing additional wages in 2012 and reducing 2013 wages.</li><li>If you are a self-employed individual, consider deferring purchases until 2013 in order to reduce the net earnings subject to the additional tax.</li><li>If you are an S corporation shareholder, consider a reasonable reduction in salary and a reasonable increase in cash distributions.</li><li>Consider the check the box rules and convert a limited liability company from a partnership to an &ldquo;S&rdquo; corporation.</li></ul></li></ol><p>Be advised that these are the current rules and could be subject to change by Congress before the end of the year. In addition, if there is a change in the presidency and/or Congress this November, these rules could be significantly altered or completely repealed by the new president and/or Congress. If there are any questions or specific circumstances for discussion, do not hesitate to contact your KSM advisor.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Sat, 04 Aug 2012 00:00:00 GMTIVSC Issues New Guidelines on Fairness Opinionshttp://www.ksmcpa.com/news-blog/ivsc-issues-new-guidelines-on-fairness-opinions
<p>&ldquo;A valuation or valuation analysis is often at the core&rdquo; of a fairness opinion, says the International Valuation Standards Council (IVSC) in a news release. Although some countries regulate the conditions surrounding fairness opinion &mdash; including who may provide them and what they should contain &mdash; these requirements &ldquo;are not consistent,&rdquo; the IVSC says, &ldquo;and many companies are domiciled in countries with no regulation at all.&rdquo; <a href="http://www.ksmcpa.com/documents/valuation-services-bulletin-summer-2012.pdf" target="_blank">Read more</a>.</p><p>To read the full text of our Valuation Services Group&nbsp;newsletter, <a href="http://www.ksmcpa.com/documents/valuation-services-bulletin-summer-2012.pdf" target="_blank">go here</a>.</p> ()Fri, 03 Aug 2012 12:00:00 GMTMultiemployer Pension Plan Disclosure Update for Contractorshttp://www.ksmcpa.com/news-blog/multiemployer-pension-plan-disclosure-update-for-contractors
<p>In accordance with the FASB&#39;s Accounting Standards Update (ASU) 2011-09, <em>Compensation-Retirement Benefits-Multiemployer Plans</em>, enhanced disclosures will soon be required for employers who participate in multiemployer plans.<br /><br />The new disclosure requirements include identifying significant multiemployer plans, the contributions made to those plans, the funded status of such plans and the existence of funding improvement plans implemented or pending implementation.<br /><br />The ASU is effective for private companies for fiscal years ending after December 15, 2012, and is to be applied retrospectively for all periods presented. The disclosures should be based on information most recently available. Therefore, it is essential that employers begin to gather information for the enhanced disclosures now.</p> ()Tue, 31 Jul 2012 12:00:00 GMTState & Local Tax Update - 7/31/12http://www.ksmcpa.com/news-blog/state-local-tax-update-7-31-12
<p><strong>Reassessment for Indiana Real Property Taxes</strong>: Indiana counties are currently wrapping up their 2012 statewide reassessments. During a reassessment year, county and township assessors are required to inspect all properties and adjust all assessed values to properly reflect market value in use. Counties were last required to reassess property in 2002; therefore, some property owners should expect significant changes as a result of the 2012 reassessment.<br /><br />Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their tax bill, it is often too late to appeal the assessed value for that year. Some counties began mailing their assessment notices this month.<br /><br />Contact your KSM advisor, or KSM property tax leader <a href="http://cl.exct.net/?qs=d3c95e85400c8718d447f1a35ee52fb7fc3c36ddc9a22677f168020534169a27" title="Chad Miller">Chad Miller</a>, as soon as you receive your Form-11. We would be happy to review the reassessed value of your commercial property to help you consider whether an appeal should be filed.</p><div style="border-top: 1px solid #ccc; margin: 10px 0 6px;">&nbsp;</div><p><strong>California Multistate Taxpayers May Elect 3-Factor Apportionment: </strong>The California Court of Appeals has ruled that multistate taxpayers could validly elect to use the Multistate Tax Compact&#39;s equally weighted 3-factor formula to apportion and allocate income for state corporation franchise/income tax purposes. The Compact&#39;s optional 3-factor formula, enacted by California in 1974, was not repealed and superseded by the 1993 amendment to California Revenue and Tax Code &sect; 25128 that required use of the double-weighted sales factor apportionment formula because such an interpretation would be unconstitutional, violative of the prohibition against impairing contracts. The Court concluded that the Compact was a valid multistate compact, and California was bound by it and its 3-factor apportionment election provision unless and until California withdrew from the Compact by enacting a statute that repeals California Revenue and Tax Code &sect; 38006. (Note that California has enacted legislation repealing the MTC code effective 6/27/12.) See <em><a href="http://www.courts.ca.gov/opinions/documents/A130803.PDF" title="The Gillette Co., et al. v. Franchise Tax Board">The Gillette Co., et al. v. Franchise Tax Board</a></em> for details of the case.<br /><br /><strong>Illinois Court Rules on Residency: </strong>An Illinois appellate court ruled that a husband and wife were not required to pay Illinois income taxes for tax years 1996 through 2004 because they were residents of Florida. In 1995, the taxpayers left their Illinois home, renounced their Illinois residency, and moved to Florida. Because the couple then split their time roughly equally between the two states, they essentially maintained an intent to return to both Illinois and Florida for half of each year. Therefore, the &quot;intent to return&quot; element of domicile determination could not govern the result in this case. The court instead focused on the concept of domicile as an intended permanent home. Although they maintained contacts, memberships and real estate in Illinois, the taxpayers changed their voter registrations to Florida, paid Florida income taxes, obtained residency cards and drivers&#39; licenses in Florida, and filed a declaration of Florida residency. Based on these factors, the court determined that the couple intended to live in Florida for half the year and visit Illinois, not the other way around. The court also examined whether the regularity and duration of the couples&#39; visits to Illinois affected their residency status. Despite some continued Illinois ties such as social club memberships and the ownership of their longtime home, the couple spent more money on Florida social clubs; voted in Florida. used a Florida telephone number; distanced themselves from their Illinois-connected companies; and began to shift the focus of their charitable foundation to Florida causes; spent more money in Florida; and purchased burial plots in Florida. Overall, the couple had a much stronger connection to Florida. See <em><a href="http://www.state.il.us/court/opinions/AppellateCourt/2012/1stDistrict/1112833.pdf" title="Cain v. Hamer">Cain v. Hamer</a> </em>for details.<br /><br /><strong>Missouri Resale Exemption Applies to Water used in Hotel Rooms: </strong>The Missouri Department of Revenue ruled that a Missouri hotel may purchase for resale water used by its patrons in their rooms for personal consumption and personal hygiene purposes and the water utility company may accept the hotel&#39;s resale exemption certificate in good faith. The hotel provides water in its hotel rooms and incorporates the cost of the water into the price the hotel patrons pay for renting the rooms. Each guest has access to the water spigots in his or her room to control the flow or completely shut off of the water in the room. Therefore, the hotel may purchase the water used in the rooms rented by its patrons under a resale exemption certificate and will not be required to pay sales tax on its purchase of water from the utility company. See <a href="http://dor.mo.gov/rulings/show.php?num=7118" title="LR 7118">LR 7118</a> for details.<br /><br /><strong>Oregon Court Rules Officer Responsible for Withholding: </strong>The Oregon Tax Court ruled a taxpayer was personally liable for unpaid withholding taxes for businesses for which he served as an officer. The taxpayer, the principal officer of a group of restaurants, appealed the Department of Revenue&#39;s determination that he was personally liable for employment taxes that were not withheld by the restaurants for portions of 2008 and 2009. The taxpayer asserted, that for the periods at issue, because he had turned over the day-to-day operations of the restaurants to various consultants and was not aware that employment taxes were not being paid, he did not willingly fail to withhold and pay employment taxes. The court stated that, unlike the federal tax system, the Oregon tax system does not have a willfulness requirement in order to establish officer liability. The court also cited authority holding that the withholding tax responsibilities of corporate officers are not delegable and do not require the officer to be in control of the corporation. As the plaintiff continued to be the corporate officer for the relevant periods, he was responsible for the withholding of employment taxes and liable for any unpaid taxes. See <em><a href="http://www.ojd.state.or.us/tax/taxdocs.nsf/%28$All%29/5AB5BE897CF75A5A88257A3F0075F609/$File/Gantes111146Nde.pdf" title="Gantes v. Dept. of Revenue">Gantes v. Dept. of Revenue</a></em> for details.<br /><br /><strong>Pennsylvania Adopts Single Sales Factor:</strong> Pennsylvania has enacted legislation that requires the use of a sales factor apportionment formula to compute Pennsylvania corporate net income tax for tax years starting after Dec. 31, 2012. See <a href="http://www.legis.state.pa.us/cfdocs/billinfo/billinfo.cfm?syear=2011&amp;sind=0&amp;body=H&amp;type=B&amp;bn=761" title="H761">H761</a> for details.</p> ()Tue, 31 Jul 2012 12:00:00 GMTDisclosure of Uncertain Tax Positions: Are Nonprofits in Compliance?http://www.ksmcpa.com/news-blog/disclosure-of-uncertain-tax-positions-are-nonprofits-in-compliance
<p>As a not-for-profit, tax-exempt organization, one might think that the subject of &ldquo;uncertain tax positions&rdquo; does not apply to his or her organization. Think again &mdash; some of the basics of operations, including the organization&rsquo;s tax-exempt status, could create uncertain tax positions that trigger critical reporting obligations. <a href="http://www.ksmcpa.com/documents/profitable-solutions-for-nonprofits_summer-2012.pdf" target="_blank">Read more</a>.</p><p>To read the full text of <em>Profitable Solutions for Nonprofits</em> newsletter, <a href="http://www.ksmcpa.com/documents/profitable-solutions-for-nonprofits_summer-2012.pdf" target="_blank">go here</a>.</p> ()Wed, 25 Jul 2012 12:00:00 GMTState & Local Tax Update - 7/16/12http://www.ksmcpa.com/news-blog/state-local-tax-update-7-16-12
<p><strong>Reassessment for Indiana Real Property Taxes</strong>: Indiana counties are currently wrapping up their 2012 statewide reassessments. During a reassessment year, county and township assessors are required to inspect all properties and adjust all assessed values to properly reflect market value in use. Counties were last required to reassess property in 2002; therefore, some property owners should expect significant changes as a result of the 2012 reassessment.<br /><br />Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their tax bill, it is often too late to appeal the assessed value for that year. Some counties began mailing their assessment notices this month.<br /><br />Contact your KSM advisor, or KSM property tax leader <a href="http://cl.exct.net/?qs=d3c95e85400c8718d447f1a35ee52fb7fc3c36ddc9a22677f168020534169a27" title="Chad Miller">Chad Miller</a>, as soon as you receive your Form-11. We would be happy to review the reassessed value of your commercial property to help you consider whether an appeal should be filed.</p><div style="border-top: 1px solid #ccc; margin: 10px 0 6px;">&nbsp;</div><p><strong>Indiana Supreme Court Reverses Tax Court Decision:</strong> The Indiana Supreme Court has held that a package delivery company&#39;s foreign reinsurance company affiliates were not entitled to an exemption from payment of Indiana adjusted gross income tax for premiums collected because the affiliates were not doing business in Indiana and so were not subject to the Indiana gross premium privilege tax. Doing business in the state is a necessary condition that insurance companies not organized under the laws of Indiana must meet in order to be subject to the premiums tax and entitled to an exemption from the adjusted gross income tax. None of the evidence provided in the case showed that the foreign reinsurance company affiliates were doing business in Indiana, thus the taxpayer failed to establish it was entitled to summary judgment as a matter of law. The Tax Court Decision was reversed and remanded. See <em><a href="http://cl.exct.net/?qs=d3c95e85400c871866b2b8b7d9418aeffbc5a635e0ec9bfe531c73188735bd71">Indiana Department of Revenue v United Parcel Service, Inc.</a></em> for details of the decision.&nbsp;</p><p><strong>Indiana Sales Tax Decision on Advertising Fees:</strong> Fees paid by a personalized gift company for the sending of emails to clients and prospects were not subject to Indiana sales tax because the Department of Revenue found that there was no transfer of tangible personal property nor specified digital product subject to Indiana sales tax. The company purchased a licensed software package used for emailing clients and prospects, as well as, mass email services which included the sending out general company announcements, promotions, schedules, new product releases and other communication. Invoices included both a software license fee and a per email charge; the per email charge was not considered to be part of the cost paid for licensing software, instead it was considered a service, which is not subject to sales tax. However, fees paid for the licensed software portion of the invoices were subject to sales tax. See <a href="http://cl.exct.net/?qs=d3c95e85400c87189bd0020fd390d9c92a65ee8b383aa6014cdf8590545ab53c">LOF 04-20110492</a> for details.</p><p><strong>Indiana Rules on Industrial Processing Exemption:</strong> Stone crushing equipment used by a company that processes and sells limestone products qualified for the industrial production exemption. Ind. Code &sect;&nbsp;6-2.5-5-3 provides for an exemption from sales tax for tangible personal property acquired for direct use in the direct production or processing of other tangible personal property. The equipment was used to crush limestone slabs in order to produce agricultural lime, crushed stone, gravel, rip rap and top soil; the Department determined that this process qualified for the industrial production exemption. However, the company&#39;s purchases of loaders, conveyor belts and other related equipment used in post-production activities were subject to sales and use tax. See <a href="http://cl.exct.net/?qs=d3c95e85400c87184e4782aa21368d61950631d92cfeb6c2cf32c5ca3034c86f">LOF 04-20110122</a> for details.</p><p><strong>Indiana Updates Agricultural Publication:</strong> The Indiana Department of Revenue has revised its information bulletin regarding agricultural production exemptions to clarify the taxability of agricultural machinery, tools, equipment, and buildings used directly in direct production. The revised bulletin also provides a website link for taxpayers to download a Streamlined Sales and Use Tax Agreement exemption certificate which can be used to purchase exempt agricultural-use property. See <a href="http://cl.exct.net/?qs=d3c95e85400c87186e41b1be61ccfecb40813c1e993913435c19450f5c15508e">Information Bulletin 9</a> for the updated information.&nbsp;</p><p><strong>Michigan Changes Due Date for Nonresident Withholding</strong>: Recently passed legislation provides that every flow-through entity that must withhold income taxes for nonresident members must remit the taxes by April 15, July 15 and Oct. 15 of the flow-through entity&#39;s tax year and by Jan. 15 of the following year (previously, the dates were April 15, June 15, Sept. 15 and Jan. 15). See <a href="http://cl.exct.net/?qs=d3c95e85400c8718cd5c61cf6ebac622dfdd20591459a4cf8210cb99100a31bd">the Michigan Web page</a> for details on the new withholding rules.&nbsp;</p><p><strong>Ohio Supreme Court Denies Government Exemption to Agent: </strong>The Supreme Court of Ohio upheld the decision of the Board of Tax Appeals and found that purchases made by the taxpayer, a company acting in its capacity as an independent contractor under a management agreement with the city of Cincinnati, did not qualify as an agent of the city with respect to the sales at issue. Cincinnati owns seven golf courses and contracted with the taxpayer to provide management services and the taxpayer did not pay sales tax with respect to otherwise taxable purchases while claiming to act as the city&#39;s agent. Sales to political subdivisions are generally exempt from sales and use tax by Ohio law, and the exemption may apply to a transaction in which an entity acts as a purchase agent for the municipality. A sale is a sale to a political subdivision only if the political subdivision is in actuality the purchaser that is consummating the sale by means of its agent; the city must assume and bear primary and essential liability to the vendor rather than its agent. However, the court agreed with the BTA in finding that political subdivision exemption does not apply to the instant case because the city was not a party to the purchase transactions and an agency relationship was not created. The taxpayer had the burden to show that the taxpayer was empowered to bind the city as a purchaser. Here, the taxpayer did not possess actual authority to bind the city to the purchases and the taxpayer&#39;s contract with the city specifically disclaims an agency relationship with respect to activities that the taxpayer conducts pursuant to the contract&#39;s terms. The contract&#39;s express provisions do not impose an agency relationship or support the notion that the taxpayer could bind the city when it made the purchases. Thus, the taxpayer is the consumer in the transactions at issue and the sales are sales to the taxpayer, not the city. See <em><a href="http://cl.exct.net/?qs=d3c95e85400c8718997bc0fcbe54db2752b160afe93259cd201275274cf8f355">Cincinnati Golf Mgt., Inc. v. Testa</a></em> for details of the decision.&nbsp; &nbsp;</p><p><strong>Tennessee Rules Deemed Dividend Subject to Income Tax:</strong> The distribution of a deemed dividend by an S corporation making an election under the federal Treasury Regulations to eliminate its accumulated earnings and profits constituted a taxable dividend for purposes of the Tennessee individual income tax. Tennessee imposes an individual income tax at the rate of six percent on &quot;incomes derived by way of dividends from stocks or by way of interest on bonds of each person, partnership, association, trust and corporation in the state of Tennessee who received, or to whom accrued, or to whom was credited during any year&quot; the dividend or interest income. The deemed dividend was properly characterized under Tennessee law as a dividend from stock and was received by, or accrued or credited to, the taxpayer&#39;s Tennessee shareholders during the tax year at issue. The Tennessee Code does not require that cash, stock, or other property actually be transferred to shareholders for taxable income to arise. On the contrary, the law expressly imposes the individual income tax on persons &quot;who received, or to whom accrued, or to whom was credited&quot; taxable dividend or interest income during the tax year. Moreover, there is no general requirement that money or other property be transferred directly to a shareholder for a dividend or other type of distribution to occur. It is sufficient that a direct or indirect transfer of money or other property be made for the benefit of the shareholders. See <a href="http://cl.exct.net/?qs=d3c95e85400c8718ff8234eaece740a79c243f1b93189e9fe7f2feb8ba3496de" title="Letter Ruling 12-04">Letter Ruling 12-04</a> for details.</p> ()Mon, 16 Jul 2012 12:00:00 GMTState & Local Tax Update - 6/26/12http://www.ksmcpa.com/news-blog/state-local-tax-update-6-26-12
<p><strong>Reassessment for Indiana Real Property Taxes</strong>: Indiana counties are currently wrapping up their 2012 statewide reassessments. During a reassessment year, county and township assessors are required to inspect all properties and adjust all assessed values to properly reflect market value in use. Counties were last required to reassess property in 2002; therefore, some property owners should expect significant changes as a result of the 2012 reassessment.<br /><br />Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their tax bill, it is often too late to appeal the assessed value for that year. Some counties began mailing their assessment notices this month.<br /><br />Contact your KSM advisor, or KSM property tax leader <a href="http://cl.exct.net/?qs=90d84609f9cf8784915fc827d448b8d6568c9a1e893c15e0c71cea3dc8855992" title="Chad Miller">Chad Miller</a>, as soon as you receive your Form-11.&nbsp; We would be happy to review the reassessed value of your commercial property to help you consider whether an appeal should be filed.<br /><br /><strong>Indiana Reminds Taxpayers of Electronic Filing Requirements</strong>: All businesses in Indiana must file and pay their sales and withholding taxes electronically effective Jan. 1, 2013. The Indiana Department of Revenue (IDOR) is encouraging taxpayers to electronically file and pay these taxes using INtax, which is the IDOR&#39;s online filing tool. Practitioners may also use INtax to: file and pay their clients&#39; business taxes; manage returns, correspond with the IDOR about returns, and file returns when no tax is due; and view filing and payment history for each client. The IDOR will begin notifying all businesses that are not currently electronically paying and filing their sales and withholding taxes in July. See <a href="http://cl.exct.net/?qs=90d84609f9cf878439ab15df91404c4c76e950c01f45913712d68181516b96f3" title="June Tax Dispatch">June Tax Dispatch</a> for details.<br /><br /><strong>Indiana Rules on Taxability of Custom Software</strong>: In a recent administrative hearing, the IDOR ruled that pre-written computer software that is modified for a customer and separately invoiced is exempt from tax. Under Indiana Code &sect; 6-2.5-1-27, tangible personal property is defined to include prewritten computer software. Indiana Code &sect; 6-2.5-1-24 defines &quot;prewritten computer software&quot; as computer software that is not designed and developed by the author or creator to the specifications of a specific purchaser. Indiana Code &sect; 6-2.5-1-24(3) provides further that &quot;if a person modifies or enhances computer software of which the person is not the author or creator, the person is considered to be the author or creator of the person&#39;s modifications or enhancements.&quot; In this instance, the taxpayer provided invoices reflecting separately stated charges for the modification or enhancement (customization) of the prewritten computer software. With this evidence, the IDR found that the taxpayer established that its purchase was not subject to use tax. The taxpayer was also able to show that only a portion of the software was used in Indiana and subject to use tax. See <a href="http://cl.exct.net/?qs=90d84609f9cf878423e4a539159862b94173fb99e94260e3a07d4e9c615846a2" title="LOF 04-20110478">LOF 04-20110478</a> for details.<br /><br /><strong>Michigan Releases 2012 Corporate Return</strong>: The Michigan Department of Transportation has issued the 2012 corporate income tax quarterly return (Form 4913). Form 4913 is used to report activity occurring after 2011. Form 4913 replaces the 2011 Michigan Business Tax (MBT) Quarterly Return (Form 4548). As a reminder, the corporate income tax took effect Jan. 1, 2012, replacing the Michigan Business Tax for corporate taxpayers. You can access the forms on the <a href="http://cl.exct.net/?qs=90d84609f9cf87840859c352c3442dbbf4906238d15be5adec6113b3a4ca4453" title="MI DOT website">MI DOT website</a>.<br /><br /><strong>North Carolina Creates New Deduction for Business Income</strong>: The North Carolina Department of Revenue has issued a directive regarding the new deduction available for tax years beginning on or after Jan. 1, 2012, for personal income taxpayers who include net business income in federal adjusted gross income. The law allows a deduction of up to $50,000 of net business income included in adjusted gross income that is not considered passive under the Internal Revenue Code. The directive provides that net business income that is not considered passive is the aggregate of all business incomes and losses (excluding passive incomes and passive losses) reported on federal Schedules C, E, and F. For purposes of this deduction, passive income means the income generated from the conduct of an activity of a trade or business that satisfies the definition in Code Sec. 469. See <a href="http://cl.exct.net/?qs=5506845c3615b5f36ffeaed6c183e59fb93ab645d199369d09447f7e82db416a" title="Directive 12-2">Directive 12-2</a> for details.<br /><br /><strong>Rhode Island Implements Minimum Fees for LLCs and Partnerships</strong>: Rhode Island Department of Taxation has adopted two new regulations affecting LLCs and partnerships. <a href="http://cl.exct.net/?qs=5506845c3615b5f3951e17819d46ca95de3b1432211b695a88b014cda0b4706c" title="Reg. CT 12-14">Reg. CT 12-14</a> and <a href="http://cl.exct.net/?qs=5506845c3615b5f31c17b44d6b85c8925631ce1690b8802bc7ce752edee7fb65" title="Reg. 12-16">Reg. 12-16</a> outline new rules related to annual filing requirements and minimum fees owed by LLCs, including single member LLCs and partnerships.<br /><br /><strong>Texas Revises Policy on Deduction Elections</strong>: The Texas Comptroller has reconsidered its position with regard to the election to take the cost of goods sold (COGS) or compensation deduction when filing an amended long form franchise tax report and will now allow taxpayers to amend reports to change their election, or to make an election, to use the COGS or the compensation deduction. See <a href="http://cl.exct.net/?qs=5506845c3615b5f303312292c8987c1f054bca1230b0f2cdc581153b355ce441" title="Comptroller's announcement">Comptroller&#39;s announcement</a> for details of the new policy.<br /><br /><strong>Utah Issues Guidance on Taxability of Software and Computer Services</strong>: The Utah State Tax Commission has issued guidance that becomes effective July 1 of this year for computer service providers on the taxability of common transactions, including the sales of prewritten software, custom software, remotely accessed software (including hosted software, application service provider software, software-as-a-service, and cloud computing applications), and computer services. License fees for remotely accessed prewritten software are taxable if the purchased software is used in Utah. If the remotely accessed software is used in more than one location and at the time of the transaction, the buyer provides the seller with a reasonable and consistent means for allocating the transactions between the locations, the seller must source the transactions to those locations. If the buyer does not provide the seller with a means of allocating the transaction among its locations, the seller must source the transaction to the buyer&#39;s address. See <a href="http://cl.exct.net/?qs=5506845c3615b5f32c92ef06155dec224ebb4939a2c408f0bad991b8fcbf98a3" title="Publication 64">Publication 64</a> for details.</p> ()Tue, 26 Jun 2012 12:00:00 GMTState & Local Tax Update - 6/18/12http://www.ksmcpa.com/news-blog/state-local-tax-update-6-18-12
<p><strong>Arizona Court Rules City Taxes Apply to Software License </strong>: A corporation that transferred possession of, but not title to, computer software was engaged in &quot;sales&quot; transactions rather than &quot;licensing for use&quot; for purposes of the city of Phoenix sales tax, even though a city legislative regulation classified the transaction as &quot;licensing for use&quot; since both title and possession were not transferred. The city ordinance merely required that either title or possession be transferred for a transaction to qualify as &quot;sales.&quot; Since the legislative rule was in conflict with the city ordinance, it was, therefore, not controlling. Further, big box retailers&#39; transactions involving software transfers of possession were classified as sales so that the taxpayer&#39;s transactions must be equally be treated as sales by the city. (City of Phoenix v. Actuate Corp., Ariz. Superior Court (Maricopa County), Dkt. No. TX 2010-000518, 02/22/2012. )<br /><br /><strong>Illinois Updates Reciprocal Rate Chart on Vehicle Sales</strong>: The Illinois Department of Revenue has updated its &quot;Reciprocal/Non-Reciprocal Vehicle Tax Rate Chart.&quot; Nonresidents may not claim the &quot;out-of-state&quot; buyer exemption on purchases of motor vehicles or trailers that will be titled in a state that does not give Illinois residents an &quot;out-of-state&quot; buyer exemption on their purchases in that state of motor vehicles or trailers that will be titled in Illinois. <a href="http://cl.exct.net/?qs=c0c367293ccd586cf5ed76023c82fe0589a7bf5d2e9c9733abd86c701d540612" title="ST-58">ST-58 </a>lists each state and shows whether or not tax must be collected, and if so, the rate used to compute the tax. The chart is effective July 2012.<br /><br /><strong>Massachusetts Rules Electronic Newsletters Subject to Sales Tax </strong>: The Massachusetts Department of Revenue ruled that sales of a company&#39;s electronic newsletter offering to MA customers are subject to MA sales and use tax because the object of the transaction is the sale of a license to use the company&#39;s proprietary software. The transfer of a license or right to use software on a server hosted by the taxpayer or a third party is taxable as a sale of software under MA sales and use tax laws. In this case, the company provides newsletter publishing services to its customers. While the company&#39;s offering involves the performance of some nontaxable services, such as bulk emailing, tracking newsletters, and compiling reports for customers in some cases, it combines these services with a license or right to access and use of company&#39;s software on a remote server with the customer performing most of these tasks themselves. The object of the customers&#39; purchase of the offering is to obtain a license or right to use software on the company&#39;s server for the purpose of creating a business newsletter that will be distributed to the customer&#39;s subscribers, and the provision of any personal or professional services, which varies depending on the customer, is incidental. See <a href="http://cl.exct.net/?qs=c0c367293ccd586c8e76517ca8919fe17355acb700f258836ddaa291b25596b5" title="Letter Ruling 12-6">Letter Ruling 12-6</a> for details.<br /><br /><strong>New York Rules Newsletter Taxable As Information Service </strong>: An Administrative Law Judge has held that the taxpayer, a publisher of electronic newsletters geared to the needs of engineering, scientific, technical and industrial professionals, did not provide a nontaxable information service that was personal and individual in nature. The Administrative Law Judge found that the primary purpose and true aim of the taxpayer&#39;s newsletter service was to furnish information to a group of readers and that this function was not merely incidental to some other service, thus he determined that the taxpayer&#39;s service was a taxable information service under New York Tax Law &sect; 1105(c)(1). The Administrative Law Judge concluded that the taxpayer&#39;s newsletter did not escape taxation under New York Tax Law &sect; 1105(c)(1) as &quot;the furnishing of information which is personal or individual in nature,&quot; because the fact that the group or segment to which the information was furnished was smaller than the general public or the entire field of engineers or scientists did not convert the taxpayer&#39;s service into a personal or individual information service. The Administrative Law Judge further noted that the taxpayer&#39;s service was not akin to a consulting service, as its subscribers did not request a particular piece of information nor is its information presented in response to a particular problem discrete to the newsletter reader. Because the taxpayer&#39;s information service was not personal or individual in nature, the Administrative Law Judge ruled that it was not removed from the realm of a taxable information service. (In the Matter of the Petition of GlobalSpec, Inc., NYS Division of Tax Appeals, ALJ, 823435, 05/10/2012.)<br /><br /><strong>Texas Issues Decision On Freight Forwarder Sales </strong>: An out-of-state company with a warehouse in Texas that provided transportation logistics services for customers in Texas was not a transportation company but a freight forwarder, and receipts from its freight forwarding activities were services performed in Texas and should be apportioned to Texas. Under Texas statutes, the gross receipts of a taxable entity from its business done in Texas include the taxable entity&#39;s receipts from each service performed in Texas. A special apportionment formula for transportation companies is provided under Texas rules. Although no definition of a transportation company is provided in the franchise tax rules or the statutes, the Comptroller has issued rulings distinguishing between entities that directly transport goods or passengers and those that provide transportation logistics services. The taxpayer did not directly transport goods, but rather arranged for the shipment of goods by unrelated third parties. See <a href="http://cl.exct.net/?qs=c0c367293ccd586c5f85a0bf760f6435b79aad8f1aa8bbea85eaf60248f37473" title="Hearing Number 105,484">Hearing Number 105,484</a> for details.<br /><br /><strong>West Virginia Court Rules No Nexus Related to Trademarks </strong>: The West Virginia Supreme Court of Appeals has affirmed a trial court decision that a foreign licensor with neither physical presence nor substantial economic presence in-state had no nexus with West Virginia, so that the state&#39;s imposition of its corporation net income tax and franchise tax on the licensor&#39;s royalties earned from the nationwide licensing of food industry trademarks and trade-names would be invalid because the tax assessments satisfied neither the &quot;purposeful direction&quot; test under the Due Process Clause nor the &quot;significant economic presence&quot; test under the Commerce Clause. For additional information, see <a href="http://cl.exct.net/?qs=c0c367293ccd586c3db9ee433c78bdf0b9e5541e23873bda576d01deb79bb7b2" title="ConAgra"><em>ConAgra</em></a>.</p> ()Mon, 18 Jun 2012 12:00:00 GMTState & Local Tax Update - 5/25/12http://www.ksmcpa.com/news-blog/state-local-tax-update-5-25-12
<p><strong>Indiana Issues Guidance on Taxation of Government Obligations: </strong>The Indiana Department of Revenue has revised its information bulletin regarding government obligations to provide an updated listing of exempt and taxable federal obligations. The revised bulletin also addresses the taxation of state and local bond interest issued by a state or political subdivision other than Indiana. Interest earned from a direct obligation of a state or political subdivision other than Indiana is subject to the adjusted gross income tax if the obligation is acquired after Dec. 31, 2011; an obligation will be considered to be acquired if the trade date is after Dec. 31, 2011. Interest earned from obligations held or acquired prior to Dec. 31, 2011, is not subject to Indiana income tax. Interest earned from obligations of Puerto Rico, Guam, Virgin Islands, American Samoa, or Northern Mariana is not included in federal gross income and is exempt under federal law, thus there is no add-back for interest earned on these obligations. See <a href="http://cl.exct.net/?qs=5967650d0393d37731c8e686375689589836054f6c684c52bb0aa46eda39ae7e" title="Information Bulletin 19">Information Bulletin 19</a> for details.<br /><br /><strong>Arizona Repeals Use Tax Declaration for Consumers:</strong> Effective for taxable years beginning from and after Dec. 31, 2011, a person who stores, uses or consumes tangible personal property subject to tax for a nonbusiness purpose and the tax was not collected by a registered retailer, the person is no longer required to declare the annual amount of tax due on his or her individual income tax form. See <a href="http://cl.exct.net/?qs=5967650d0393d37713c7e261c23d74e47a773c1dd8a668200a8d15c7ff493ec9" title="SB 1214">SB 1214</a> for more information.<br /><br /><strong>Illinois Circuit Court Declares Click-Through Nexus Rule Unconstitutional:</strong> A Cook County circuit court judge ruled that Illinois&#39; 2011 &quot;Amazon tax&quot; legislation is unconstitutional, citing violations of the Commerce Clause and Supremacy Clause. <a href="http://cl.exct.net/?qs=5967650d0393d377a9c9d2e7b5025cc2917485a7a165e1f36ff723a7414052e8" title="Click here">Click here</a> to view the decision.<br /><br /><strong>Ohio to Offer Amnesty Program: </strong>From May 1, 2012, through June 15, 2012, Ohio will offer a general tax amnesty program to qualifying taxpayers with certain unreported or underreported taxes that were due and payable as of May 1, 2011. In exchange for coming forward, penalties will be abated and 50 percent of interest will be forgiven. Most taxes administered by the Department of Taxation are eligible; however, consumer&#39;s use tax is not eligible for the general amnesty program. A separate Consumer&#39;s Use Tax Amnesty Program is available. See <a href="http://cl.exct.net/?qs=5967650d0393d377415471e76ee71e0693263727e7f0d0c8a96d7e2792129a07" title="http://ohiotaxamnesty.gov/">http://ohiotaxamnesty.gov/</a> for details on eligibility and the application process.<br /><br /><strong>Oklahoma Court Rules No Nexus for IP Company: </strong>The Oklahoma Supreme Court has reversed a determination of the Court of Appeals and ruled that the Tax Commission improperly assessed corporate income taxes against a Vermont corporation on payments it received from a restaurant chain for use of the taxpayer&#39;s intellectual property in Oklahoma where the licensing contract was not entered into in Oklahoma and where no part of the contract was to be performed in Oklahoma. See <a href="http://cl.exct.net/?qs=5967650d0393d377d6b8b22dd9e6e07c465c2cadee6603dde490b69c5ddb1445" title="Scioto Insurance Company v. Oklahoma Tax Commission"><em>Scioto Insurance Company v. Oklahoma Tax Commission</em></a> for details of the case and the Court&#39;s analysis.<br /><br /><strong>Wisconsin Updates Sales Tax Publication on Digital Goods: </strong>The Wisconsin Department of Revenue has updated its publication concerning the application of sales and use taxes to digital goods. The revised publication reflects the Department of Revenue&#39;s determination that certain construction plans and construction project information are subject to sales and use taxes as additional digital goods that are news or other information products. This tax treatment applies for sales occurring on and after July 1, 2012. In addition, examples of products that constitute &quot;additional digital goods&quot; have been added to the publication, as well as examples of products that are transferred electronically but are not subject to the sales and use taxes imposed on sales of specified digital goods and additional digital goods. Finally, information on &quot;bundled transactions&quot; has been added to the publication. See <a href="http://cl.exct.net/?qs=5967650d0393d3773b382249ead55d7453416f8138086703539371d133e48aed" title="Publication 240">Publication 240</a> for details.</p> ()Fri, 25 May 2012 12:00:00 GMTSafety Net Essentialshttp://www.ksmcpa.com/news-blog/safety-net-essentials
<p>Too few nonprofits keep healthy operating reserves. A study of charities in the Washington, D.C. area, for example, found that 57 percent of the organizations had insufficient operating reserves to cover three months of expenses - the minimum level many experts consider necessary to maintain financial stability. <a href="http://www.ksmcpa.com/documents/profitable-solutions-for-nonprofits_spring-2012.pdf" title="Read more">Read more</a>.<br /><br /><a href="http://www.ksmcpa.com/documents/profitable-solutions-for-nonprofits_spring-2012.pdf" title="Read the full text of the newsletter">Read the full text of the newsletter</a>.</p> ()Mon, 30 Apr 2012 12:00:00 GMTState & Local Tax Update - 4/27/12http://www.ksmcpa.com/news-blog/state-local-tax-update-4-27-12
<p><strong>Arizona Adjusts Qualifications for Charitable Contribution Credit: </strong>Effective for tax years beginning Dec. 31, 2011, contributions can only qualify for a tax credit if the organization to whom the contribution is made provides a written certification stating that it does not provide, pay for, or provide coverage of abortions and does not financially support any other entity that provides, pays for, or provides coverage for abortions. Language specifying that the organization will not promote or provide referrals for abortions is removed. See <a href="http://legiscan.com/gaits/text/629362" title="HB 2627">HB 2627</a> for details.<br /><br /><strong>Maine Bill Eliminates Information Return Filing Requirement:</strong> Maine Governor Paul LePage recently signed a supplemental budget bill including a provision that eliminates certain information return filing requirements. For tax years beginning on or after January 1, 2012, the legislation repeals the information return filing requirement for partnerships and S corporations that have a resident partner or shareholder or income derived from sources in Maine. Related provisions are also repealed and certain other technical changes are made. See <a href="http://www.mainelegislature.org/legis/bills/getPDF.asp?paper=HP1405&amp;item=1&amp;snum=125" title="LD 1903">LD 1903</a> for details.<br /><br /><strong>New Mexico Sales Tax Nexus Created for Online Bookseller: </strong>The New Mexico Court of Appeals has determined that the in-state use of the Barnes &amp; Noble trademark was sufficient to meet the constitutional substantial nexus standard for <a href="http://barnesandnoble.com/">Barnesandnoble.com</a> LLC. Although the online bookseller (a separate legal entity) had no owned or leased property in NM, had no retail stores in NM, and no sales agents or employees in NM, the Court determined that nexus had been created through a relationship with the brick-and-mortar Barnes &amp; Noble stores via utilization of common intangible property. (In the Matter of the Protest of Barnes and Noble Co, LLC v. New Mexico Taxation and Revenue Department, N.M. Ct. App., Dkt. No. 31,231, 04/18/2012.)</p> ()Fri, 27 Apr 2012 12:00:00 GMTState & Local Tax Update - 4/20/12http://www.ksmcpa.com/news-blog/state-local-tax-update-4-20-12
<p><strong>Kentucky to Offer Amnesty Program: </strong>Kentucky Governor Steve Beshear has signed legislation authorizing a tax amnesty program to be conducted during the fiscal year ending June 30, 2013. The tax amnesty program will apply to tax liabilities for taxable periods ending or transactions occurring after Dec. 1, 2001, and prior to Oct. 1, 2011. The program will be available to all taxpayers owing taxes, penalties, fees or interest subject to the administrative jurisdiction of the Department of Revenue, with the exception of property taxes or penalties related to cigarettes or fuel licenses. Stay tuned for more information.<br /><br /><strong>Kentucky to Streamline Local Tax Information:</strong> Recently passed <a href="http://cl.exct.net/?qs=b8bc920e3f18a3bde8a129cbd0c11025d11ee43dc1538b2c3fabe4fc80e37c0c" title="HB 277">HB 277</a> seeks to streamline and facilitate the efficient collection of local net profits, gross receipts, and occupational license taxes by requiring all local tax districts that levy such taxes to submit their tax forms, instructions and ordinances in either electronic or hard copy to the Kentucky Secretary of State for inclusion on the one-stop business portal or similar website before Nov. 1, 2012, and to accept tax returns using a new standard form that is to be developed by the Secretary.<br /><br /><strong>Michigan Issues Guidance on Flow-Through Withholding Rules:</strong> The Michigan Department of Treasury has issued <a href="http://cl.exct.net/?qs=b8bc920e3f18a3bd263590f7a34ee6f210f8f4cb3328057014a8c7e86e202b5d" title="a release">a release</a> on the new withholding rules effective Jan. 1, 2012. The release addresses rules for the three categories of flow-through withholding (nonresident individuals, corporate members and flow-through members), returns and due dates.<br /><br /><strong>Nebraska to Move to Market Approach for Income Tax:</strong> Beginning Jan. 1, 2014, Nebraska has modified its sourcing method for sales other than sales of tangible personal property. Sales of services, intangibles, lender fees and communications are affected be the new law. See <a href="http://cl.exct.net/?qs=b8bc920e3f18a3bd47a496f8695b4a4009cba8b6ae228c3c166b68d0a28973c4" title="LB872">LB872</a> for details of the changes.</p> ()Mon, 23 Apr 2012 12:00:00 GMTState & Local Tax Update - 4/13/12http://www.ksmcpa.com/news-blog/state-local-tax-update-4-13-12
<p><strong>Colorado: Federal judge grants permanent injunction blocking Colorado notice and reporting requirements for out-of-state retailers: </strong>Effective March 30, 2012, Federal District Court Judge Robert E. Blackburn issued a permanent injunction requested by the Direct Marketing Association that blocks the Colorado Department of Revenue&#39;s imposition of notice and reporting requirements on out-of-state retailers because the provisions are unconstitutional under the U.S. Commerce Clause. Colo. Rev. Stat. &sect; 39-21-112(3.5) and Colo. Code Regs. &sect; 39-21-112.3.5 impose an improper and burdensome regulation of interstate commerce. See <a href="http://cl.exct.net/?qs=76ef7b78e8bd0580858c984539ff5c872adf914f3d20733b5b5a184f26a44fae" title="Direct Marketing Association v. Colorado Department of Revenue"><em>Direct Marketing Association v. Colorado Department of Revenue</em></a>, Civil Case No. 10-cv-01546-REB-CBS, 03/30/2012.</p><p><strong>Virginia Governor Signs &quot;Amazon&quot; Law: </strong>Virginia Governor Bob McDonnell signed &quot;Amazon legislation&quot; that creates a presumption of sales and use tax nexus for an out-of-state seller if a commonly controlled person maintains a distribution center, warehouse, fulfillment center, office or similar location within Virginia that facilitates the delivery of tangible personal property sold by the seller to its customers. The legislation will become effective on the earlier of Sept. 1, 2013, or the effective date of federal legislation authorizing the states to require a seller to collect taxes on sales of goods to in-state purchasers without regard to the location of the seller. See <a href="http://cl.exct.net/?qs=76ef7b78e8bd0580b9f8e145edb58627e09310e7efcaa11b122b35234baa7a35" title="S597">S597</a> for details.</p> ()Fri, 13 Apr 2012 12:00:00 GMTState & Local Tax Update – 2012 Legislative Updatehttp://www.ksmcpa.com/news-blog/state-local-tax-update-2012-legislative-update
<p>Katz, Sapper &amp; Miller&rsquo;s State &amp; Local Tax Practice has released its <a href="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/98b57b51-fc02-4e34-b17f-61cf2931f4d2/indiana-legislative-update-2012.pdf" target="_blank">2012 Legislative Update</a>, which provides a summary of the various tax and economic development legislative changes that occurred during the 2012 session of the Indiana General Assembly.<br /><br />The update covers changes in areas such as sales tax, income tax, property tax, economic development and tax credits, and others. For more information on how a specific law change may affect your business, please contact the members of our State &amp; Local Tax Practice listed in this publication.</p> ()Mon, 09 Apr 2012 12:00:00 GMTState & Local Tax Update - 3/30/12http://www.ksmcpa.com/news-blog/state-local-tax-update-3-30-12
<p><strong>Indiana Updates EITC Bulletin:</strong> The Indiana Department of Revenue has updated its information bulletin concerning the individual earned income tax credit to reflect the state&#39;s changes to EITC. 2011 legislative bill H1001 provided that the EITC for tax years beginning after December 31, 2010, was to be calculated based on Code Sec. 32 as it existed before being amended by P.L. 111-312. P.L. 111-312 extended expiring provisions that were contained in Code Sec. 32. Indiana is not recognizing extensions contained in P.L. 111-312. See <a href="http://www.ai.org/dor/reference/files/ib92.pdf" target="_blank" title="Information Bulletin">Information Bulletin</a> 92 for details.<br /><br /><strong>Missouri Department of Revenue Issues Ruling on Sales Tax Exemptions for Trucking Companies:</strong> The Missouri Department of Revenue ruled that sales by a vendor that sells products to common carriers of certain products that attached directly to a vehicle or trailer such as placards, decals, trailer seals and load tie down straps are exempt from sales and use tax because the products are used directly on motor vehicles operated by common carriers. However, the sales of certain products such as driver&#39;s logbooks, safety pocket books, vehicle inspection forms, bill of lading forms, wallet cards, and safety kits are not exempt because these items do not meet the requirement that they be used directly on motor vehicles operated by common carriers. Sales of certain products for office usage such as interactive Internet service and information access are also exempt, because no tangible personal property is received. But, sales of mileage tracking software on CDs are taxable because the software is a transfer of tangible personal property. Sales of manuals and newsletters on hazardous material handling, fleet safety compliance, and vehicle maintenance are subject to sale tax if the manuals and newsletters are transmitted in the form of tangible personal property. See <a href="http://dor.mo.gov/rulings/show.php?num=7068" target="_blank" title="LR 7068">LR 7068</a> for details.<br /><br /><strong>Wisconsin Sales Tax Applies to Parking Charges for Common Carriers:</strong> The Wisconsin Department of Revenue has clarified the sales and use treatment of parking charges for common and contract carriers. Generally, parking or providing parking spaces for motor vehicles is subject to Wisconsin sales and use tax. There is no exemption for common or contract carriers; such carriers cannot claim an exemption on the vehicle that is being parked. For instance, if a contract carrier who claimed a sales and use tax exemption on its purchase of trucks because it uses the trucks exclusively as a contract carrier enters into a contract with another company to pay $100 a month to park its trucks in the company&#39;s lot in Wisconsin, the $100 charge is subject to WI sales and use tax. No exemption may be claimed. Further, while a common carrier may claim a sales and use tax on its purchase of trucks because it uses the trucks exclusively as a common carrier, parking charges to park the trucks in another company&#39;s parking lot are subject to Wisconsin sales and use tax. See <a href="http://www.revenue.wi.gov/taxpro/news/120323.html" target="_blank" title="3/23/12">3/23/12</a> Article for additional information.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Fri, 30 Mar 2012 16:10:00 GMTDeducting Charitable Contributions: Eight Essentialshttp://www.ksmcpa.com/news-blog/deducting-charitable-contributions-eight-essentials
<p>Donations made to qualified organizations may help reduce the amount of taxes you pay. The IRS has <a href="http://links.govdelivery.com/track?type=click&amp;enid=ZWFzPTEmbWFpbGluZ2lkPTIwMTIwMzI2LjY0MTgzMzEmbWVzc2FnZWlkPU1EQi1QUkQtQlVMLTIwMTIwMzI2LjY0MTgzMzEmZGF0YWJhc2VpZD0xMDAxJnNlcmlhbD0xNjkyNzM5NiZlbWFpbGlkPWN0YXRlQGtzbWNwYS5jb20mdXNlcmlkPWN0YXRlQGtzbWNwYS5jb20mZmw9JmV4dHJhPU11bHRpdmFyaWF0ZUlkPSYmJg==&amp;&amp;&amp;129&amp;&amp;&amp;http://www.irs.gov/newsroom/article/0,,id=255842,00.html" title="eight essential tips">eight essential tips</a> to help ensure your contributions pay off on your tax return.</p><p>In addition, the IRS has released <a href="http://links.govdelivery.com/track?type=click&amp;enid=ZWFzPTEmbWFpbGluZ2lkPTIwMTIwMzI2LjY0MTgzMzEmbWVzc2FnZWlkPU1EQi1QUkQtQlVMLTIwMTIwMzI2LjY0MTgzMzEmZGF0YWJhc2VpZD0xMDAxJnNlcmlhbD0xNjkyNzM5NiZlbWFpbGlkPWN0YXRlQGtzbWNwYS5jb20mdXNlcmlkPWN0YXRlQGtzbWNwYS5jb20mZmw9JmV4dHJhPU11bHRpdmFyaWF0ZUlkPSYmJg==&amp;&amp;&amp;122&amp;&amp;&amp;http://www.irs.gov/pub/irs-pdf/p1771.pdf" title="Publication 1771 (rev. September 2011), Charitable Contributions - Substantiation and Disclosure Requirements">Publication 1771 (rev. September 2011), <em>Charitable Contributions - Substantiation and Disclosure Requirements</em></a>, which explains general rules and specifications for documenting charitable deductions and explains new guidelines that allow charities to electronically mail documentation to donors.</p><p>For more information, contact your KSM advisor.</p><p><em>Source: Internal Revenue Service</em></p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 28 Mar 2012 17:30:00 GMTState & Local Tax Update - 3/23/12http://www.ksmcpa.com/news-blog/state-local-tax-update-3-23-12
<p><strong>Indiana Tornado Victims Assistance</strong>:&nbsp; The Indiana Department of Revenue (IDOR) has provided answers to potential questions from individual and business taxpayers in counties affected by recent tornados. Taxpayer issues addressed include return filing and refunds, lost records, payment coupons and registered retail merchant certificates, and obtaining a copy of a state return to verify income. The IDOR will make every effort to work with business taxpayers that live in an area affected by severe weather and that are unable to make payment on their bills at this time in coming to a reasonable agreement for payment on a case by case basis. Contact the IDOR at 317.233.5212 to discuss with an IDOR representative.</p><p><strong>Louisiana No Longer Accepts Federal Extension</strong>: Effective March 20, 2012, the Louisiana Department of Revenue (LDR) adopted emergency amendments to an administrative rule that govern the procedure for obtaining individual income tax return filing extensions, and corporation income and franchise tax return filing extensions. The amended rules provide that taxpayers seeking to obtain a return filing extension must request the extension by submitting a paper copy or an electronic application. The LDR no longer accepts a federal extension to file as an extension to file the Louisiana tax return. This change applies to tax returns due on or after January 1, 2012.</p><p><strong>Nebraska Issues Guidance for Construction Contractors</strong>: The Nebraska Department of Revenue (NDR) has released a presentation on taxes for construction contractors that has been prepared by the NDR staff. The presentation: (1) provides an overview of sales and use tax laws; (2) discusses the contractor database that is used for purposes of determining whether taxes must be withheld from contractors; (3) discusses sharing of information between the Department of Labor and the&nbsp;NDR for purposes of determining whether persons hired are contractors or employees; (4) explains the terms &ldquo;construction contractors,&rdquo; &ldquo;contractor labor,&rdquo; &ldquo;building materials&rdquo; and &ldquo;fixtures&rdquo;; (5) explains the taxability of transactions for Option 1, Option 2 and Option 3 contractors; (6) discusses the taxability of contracts with exempt entities; (7) explains the taxability of building materials and fixtures that are used on job sites outside Nebraska; and (8) explains the taxability of the repair or annexation of exempt manufacturing machinery and equipment. See the <a href="http://www.revenue.ne.gov/info/6-496.pdf" target="_blank">Fact Sheet</a> for more information.</p><p><strong>Texas to Offer Amnesty Program</strong>:&nbsp; Texas has announced Project Fresh Start, a limited tax amnesty program under which penalties and interest will be waived for taxpayers that file delinquent tax reports and pay all taxes due, or amend reports that underreported taxes and pay the taxes due. Reports originally due before April 1, 2012, are eligible for the program. The amnesty period runs from June 12 through August 17, 2012. For details on eligibility and the application procedure, see <a href="http://freshstart.texas.gov/" target="_blank">http://freshstart.texas.gov/</a>.</p>jcody@ksmcpa.com (Jenina Cody)Fri, 23 Mar 2012 13:54:00 GMTNew W-2 Reporting Requirements for 2012http://www.ksmcpa.com/news-blog/new-w-2-reporting-requirements-for-2012
<p>When the Patient Protection &amp; Affordable Care Act (PPACA) was passed in March 2010, a number of mandates became law. While some of these mandates have been widely discussed &ndash; such as the employer requirement to provide affordable health coverage and the requirement for individuals to buy health insurance by 2014 &ndash; other directives are not as well known. One of the lesser known mandates is the act&rsquo;s new Form W-2 reporting requirement. Effective for 2012 W-2s, employers must report the cost of coverage under an employer-sponsored group health plan.</p><p>More specifically, employers must report the total cost of all &ldquo;applicable employer sponsored coverage&rdquo; provided to an employee. Applicable employer sponsored coverage is defined as &ldquo;coverage under a group health plan that the employer makes available to the employee that is non-taxable to the employee.&rdquo; In other words, employers must report the costs of major medical insurance and similar plans on employees&rsquo; W-2s. The amount reported will be comprised of both employer and employee contributions. Employee contribution amounts must include both pre-tax and after-tax contributions.</p><p>The coverage costs of the following types of plans must be indicated on 2012 Form W-2s in box 12 with a code &ldquo;DD&rdquo; designation:</p><ul><li>Medical plans;</li><li>Prescription drug plans;</li><li>Executive physicals;</li><li>On-site clinics, if they provide more than minimal care;</li><li>Medicare supplemental policies;</li><li>Employee assistance programs; and</li><li>Dental and vision plans, unless they are &ldquo;stand-alone&rdquo; plans.</li></ul><p>It is important to note that the costs of coverage under health flexible spending accounts, health savings accounts, and long-term care insurance are excluded from the reporting requirement.</p><p>In interim guidance, the IRS remarked that this additional reporting is for informational purposes only. The PPACA does not cause any previously excludable employer-provided health coverage to become taxable. According to the service, the main purpose of this legislation is to notify employees about the true cost of their healthcare coverage.</p><p>If you are a business owner it will be important to track this cost of coverage data for the entire year. If your business uses a payroll company you may consider discussing this new reporting requirement with your payroll provider in order to be aware of any additional information the provider will need. &nbsp;</p><p>Below is a quick reference chart provided for your convenience that contains the new requirements for 2012 and beyond. Items listed as &ldquo;optional&rdquo; may be changed by future IRS rules; however, any such change will not be applicable until the tax year beginning at least six months after the date the guidance is issued.</p><table border="1" cellpadding="5" cellspacing="1" style="width: 590px"><tbody><tr><td style="text-align: center"><strong>Coverage Type</strong></td><td style="text-align: center"><strong>Report</strong> <strong>on form W-2</strong></td><td style="text-align: center"><strong>Do Not Report</strong> <strong>on Form W-2</strong></td><td style="text-align: center"><strong>Optional<br />Reporting</strong></td></tr><tr><td>Major medical</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Dental or vision plan not integrated into another medical or health plan</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td></tr><tr><td>Dental or vision plan which gives the choice of declining or electing and paying an additional premium</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td></tr><tr><td>Health Flexible Spending Arrangement (FSA) funded solely by salary-reduction amounts</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Health FSA value for the plan year in excess of&nbsp;employee&rsquo;s cafeteria plan salary reductions for all qualified benefits</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Health Reimbursement Arrangement (HRA) contributions</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td></tr><tr><td>Health Savings Arrangement (HSA) contributions (employer or employee)</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Archer Medical Savings Account (Archer MSA) contributions (employer or employee)</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Hospital indemnity or specified illness (insured or self-funded), paid on after-tax basis</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Hospital indemnity or specified illness (insured or self-funded), paid through salary reduction (pre-tax) or by employer</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Employee Assistance Plan (EAP) providing applicable employer-sponsored healthcare coverage</td><td style="text-align: center">Required if employer charges a COBRA premium</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">Optional if employer does not charge a COBRA premium</td></tr><tr><td>On-site medical clinics providing applicable employer-sponsored healthcare coverage</td><td style="text-align: center">Required if employer charges a COBRA premium</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">Optional if employer does not charge a COBRA premium</td></tr><tr><td>Wellness programs providing applicable employer-sponsored healthcare coverage</td><td style="text-align: center">Required if employer charges a COBRA premium</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">Optional if employer does not charge a COBRA premium</td></tr><tr><td>Multi-employer plans</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td></tr><tr><td>Domestic partner coverage included in gross income</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Military plan provided by a governmental entity</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Federally recognized Indian tribal government plans and plans of tribally charted corporations wholly owned by a federally recognized Indian tribal government</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Self-funded plans not subject to Federal COBRA</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td></tr><tr><td>Accident or disability income</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Long-term care</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Liability insurance</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Supplemental liability insurance</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Workers&#39; compensation</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Automobile medical payment insurance</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Credit-only insurance</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Excess reimbursement to highly compensated individual, included in gross income</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td></tr><tr><td>Payment/reimbursement of health insurance premiums for 2% shareholder-employee, included in gross income</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td><td style="text-align: center">&nbsp;</td></tr><tr><td style="text-align: center"><strong>Other Situations</strong></td><td style="text-align: center"><strong>Report</strong></td><td style="text-align: center"><strong>Do Not Report</strong></td><td style="text-align: center"><strong>Optional</strong></td></tr><tr><td>Employers required to file fewer than 250 Forms W-2 for the preceding calendar year</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td></tr><tr><td>Forms W-2 furnished to employees who terminate before the end of a calendar year and request, in writing, a Form W-2 before the end of that year</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td></tr><tr><td>Forms W-2 provided by third-party sick-pay provider to employees of other employers</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">&nbsp;</td><td style="text-align: center">X</td></tr></tbody></table><p>Please contact your Katz, Sapper &amp; Miller tax advisor if you have any questions about this new reporting requirement.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Mon, 12 Mar 2012 13:31:00 GMTMust an LLC Turn over the Valuation Records of Its Subsidiary?http://www.ksmcpa.com/news-blog/must-an-llc-turn-over-the-valuation-records-of-its-subsidiary
<p><strong><span face=""><em>DFG Wine Co., LLC v. Eight Estates Wine Holdings, LLC</em></span>, C.A. No. 6110-VCN (Del. Ch.) (August 31, 2011)</strong><br /><br /><span face="">The Delaware Chancery Court just provided a good checklist of documents to request and require in a &quot;books and record&quot; action by the controlling member of a limited liability company (LLC), particularly when the purpose of the request is to ascertain the value of the member&#39;s holdings, not just in the LLC, but in its subsidiary. In this case, the LLC held the assets of a company that owned and operated eight wine brands. When the subsidiary started to flounder, the LLC&#39;s limited partners petitioned the Delaware Chancery to access the books and records of the LLC as well as the subsidiary. The LLC objected under Delaware law, maintaining that since the subsidiary was near insolvency, the valuation was zero (or a simple matter of mathematics), so the request was &quot;meaningless.&quot; </span><a alias="Read more" conversion="false" href="http://www.ksmcpa.com/documents/valuation-services-bulletin_2012_winter.pdf" title="Read more"><span face="">Read more</span></a><br /><br /><span face="">To read the full text of&nbsp;Valuation Services Group&nbsp;newsletter, </span><a alias="go here" conversion="false" href="http://www.ksmcpa.com/documents/valuation-services-bulletin_2012_winter.pdf" title="go here"><span face="">go here</span></a><span face="">.</span><br /><br /><br />&nbsp;</p>dblackmon@ksmcpa.com (Donna Blackmon)Wed, 07 Mar 2012 15:40:00 GMTPayroll Tax Cut Extended for All of 2012http://www.ksmcpa.com/news-blog/payroll-tax-cut-extended-for-all-of-2012
<p>On Feb. 22, 2012, the Temporary Payroll Tax Cut Continuation Act of 2011 was permanently extended for all of 2012. This extends the two percentage point payroll tax cut for employees, continuing the reduction of their social security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Dec. 31, 2012. This reduced social security withholding will have no effect on employees&#39; future social security benefits.<br /><br />As part of the legislation, the recapture provision, passed with the original legislation in December, will be repealed.</p><p><strong>Unemployment Benefits</strong></p><p>In addition, the legislation signed by President Obama on Feb. 22, 2012 reduces the number of weeks an individual may receive unemployment benefits from 99 weeks to 73 weeks for those living in states with an unemployment rate higher than the 8.3 percent national average.<br /><br />For those in states with an unemployment rate under the national average, the number of weeks an individual may receive unemployment benefits will be reduced to as low as 40 weeks in some states. The legislation also includes a provision that allows states to drug-test unemployment beneficiaries, as well as a provision to prevent reductions in Medicare reimbursements for doctors.<br /><br /><em>Source: Paychex, Inc.</em><br /><br /><br />&nbsp;</p>dblackmon@ksmcpa.com (Donna Blackmon)Wed, 07 Mar 2012 14:49:00 GMTNew Reporting Obligation for Foreign Financial Assetshttp://www.ksmcpa.com/news-blog/new-reporting-obligation-for-foreign-financial-assets
<p>A new tax reporting obligation is being imposed on U.S. <em><u>individuals</u></em> that have an interest in <em><u>specified foreign financial assets</u></em> when the total aggregate value of those assets exceeds an <em><u>applicable reporting threshold</u></em>. This reporting obligation is effective starting for tax year 2011 and is satisfied by attaching Form 8938, Statement of Foreign Financial Assets, to the individual taxpayer&rsquo;s 2011 Form 1040. The penalties for failing to file a required Form 8938 are severe. Thus, U.S. individuals with interests in foreign assets must carefully analyze their potential obligation to report such interest on a Form 8938 attached to their 2011 Form 1040.</p><p><em>Only Individuals &hellip; For Now</em></p><p>The IRS anticipates issuing regulations that will require certain domestic entities to file Form 8938 if such entity were formed or availed of to hold specified foreign financial assets. Until the IRS issues such regulations, only individuals must file Form 8938. The IRS has stated that they intend to issue regulations applicable to domestic entities during 2012. Thus, some domestic entities may have this filing obligation starting with their 2012 tax returns. However, the obligation will only be imposed on individuals with respect to 2011 tax returns.</p><p><em>Specified Foreign Financial Assets</em></p><p>Individuals must identify whether they have an interest in any specified foreign financial assets. For this purpose, a specified foreign financial asset is defined as:</p><ul><li>Any financial account maintained by a foreign financial institution; and</li><li>The following assets to the extent that they&rsquo;re held for investment and not held in a financial account:
<ul style="list-style-type: circle"><li>Any interest in a foreign entity;</li><li>Any stock or securities issued by someone that is not a U.S. person; and</li><li>Any financial instrument or contract with an issuer or counterparty that is not a U.S. person.</li></ul></li></ul><p>The term &ldquo;held for investment&rdquo; encompasses all assets that are not used in, or held for use in, the conduct of any trade or business. Stock is never considered used or held for use in the conduct of a trade or business.</p><p>There are exceptions to the definition of &ldquo;specified foreign financial asset&rdquo; for assets that are subject to the mark-to-market accounting rules and for assets held in a domestic bankruptcy trust.</p><p><em>Applicable Reporting Threshold</em></p><p>Individuals that own an interest in specified foreign financial assets must then value each interest based on the highest fair market value of each asset during the tax year as well as the value of each asset as of the last day of the tax year. The Form 8938 is required if the aggregate fair market value of all the individual&rsquo;s specified foreign financial assets exceeds certain thresholds. Married individuals that file a joint income tax return file a single Form 8938 that reports all the specified foreign financial assets of both spouses. The filing thresholds vary based on the individual&rsquo;s filing status and whether or not the individual lives within the U.S. The following table summarizes the filing thresholds:</p><table border="1" cellpadding="5" cellspacing="1" style="width: 500px"><thead><tr><th scope="col" style="text-align: left"><strong>Filing Status</strong></th><th scope="col" style="text-align: left"><strong>Living In</strong></th><th scope="col" style="text-align: left"><strong>Value on Last Day of Year</strong></th><th scope="col" style="text-align: left"><strong>Value on Any Day of Year</strong></th></tr></thead><tbody><tr><td>Unmarried or Married Filing Separately</td><td>U.S.</td><td>$50,000</td><td>$75,000</td></tr><tr><td>Married Filing Jointly</td><td>U.S.</td><td>$100,000</td><td>$150,000</td></tr><tr><td>Unmarried or Married Filing Separately</td><td>Foreign Country</td><td>$200,000</td><td>$300,000</td></tr><tr><td>Married Filing Jointly</td><td>Foreign Country</td><td>$400,000</td><td>$600,000</td></tr></tbody></table><p><em>Penalties</em></p><p>The failure to comply with the Form 8938 reporting obligation can result in significant penalties. The penalties can be waived by the IRS if the failure to file was due to reasonable cause and was not willful. However, there can be no guarantees that the failure to file penalties will be waived. There are at least seven different penalties that can be imposed with respect to Form 8938. The general failure to file penalty is $10,000 per failure. The IRS can impose an additional $10,000-per-month penalty if the failure continues after the taxpayer is notified by the IRS. If unreported income is associated with the undisclosed specified foreign financial assets, there is a 40% accuracy related penalty. The statute of limitations remains open for all or part of the tax return until three years after the date on which the required Form 8938 is filed. Furthermore, there is a special six-year statute of limitations for unreported income associated with disclosed specified foreign financial assets. Finally, fraud and criminal penalties can be imposed when there is a willful failure to file that is part of a tax evasion scheme.</p><p>The above client alert provides a brief summary of this new reporting obligation. There are significant nuance and details that are beyond the scope of this alert. Please contact your Katz, Sapper &amp; Miller advisor to discuss specific questions that may be applicable to you.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Mon, 27 Feb 2012 14:48:00 GMTState & Local Tax Update - 2/24/12http://www.ksmcpa.com/news-blog/state-local-tax-update-2-24-12
<p><strong>Idaho Updates Guidance Regarding Sales Tax on Interstate Vehicles &ndash; </strong>Effective 7/1/12, <a href="http://www.legislature.idaho.gov/legislation/2012/H0361.pdf" target="_blank">HB 361</a> provides that, in the context of the tax exemption for motor vehicles and trailers substantially used in interstate commerce and registered under the International Registration Plan (IRP), &ldquo;substantially used in interstate commerce&rdquo; means that the vehicle or trailer is operated in a fleet that logs at least 10% of its fleet miles outside of Idaho in the four fiscal quarters beginning July 1 and ending June 30 of each year (previously, in an annual registration period) under the IRP. If such motor vehicle or trailer is not substantially used in interstate commerce during the four fiscal year quarters beginning July 1 and ending June 30 of each year (previously, during an annual registration period), it is deemed to be used in Idaho and it is subject to the Idaho use tax.</p><p><strong>Illinois Issues Ruling on Independent Contractor and Nexus</strong> - The Illinois Department of Revenue&nbsp;determined that a taxpayer&#39;s contracting sales of services in Illinois on a regular basis would &ldquo;likely&rdquo; subject the taxpayer to Illinois income taxation. The taxpayer operates a 24/7 call center for national retailers with multi-site locations. The business consists of coordinating contracted labor on an as-needed basis for its national customers, some of them located in Illinois. The &ldquo;contracted&rdquo; work is done by independent contractors as the taxpayer does not have payroll, inventory, personal property or a physical presence in Illinois. However, Ill. Admin. Code 86 &sect;&nbsp;100.9720(c)(6) provides that the use of independent contractors may only afford a nonresident immunity from taxation for &ldquo;limited activities.&rdquo; The IL DOR indicated that the fact that the taxpayer&#39;s business is entirely set up around using independent contractors on a regular basis may jeopardize the protections otherwise afforded. See <a href="http://tax.illinois.gov/LegalInformation/Letter/rulings/it/2012/IT-12-0001.pdf" target="_blank">IT 12-0001-GIL</a> for details.<br /><br />&nbsp;</p>jcody@ksmcpa.com (Jenina Cody)Fri, 24 Feb 2012 14:50:00 GMTGlider Kits Making an Impact on the Trucking Industryhttp://www.ksmcpa.com/news-blog/glider-kits-making-an-impact-on-the-trucking-industry
<p>Over the past decade, the transportation industry has been transformed by the simultaneous hit of the Great Recession and the sting of stiffer EPA standards. These factors have caused several interesting byproducts, including the resurgence of glider kits. <a href="http://www.ksmcpa.com/documents/truck-times-2012_issue-1.pdf" title="Read more">Read more</a><br /><br />To read the full text of the <em>Truck Times </em>newsletter, <a href="http://www.ksmcpa.com/documents/truck-times-2012_issue-1.pdf" title="go here">go here</a>.<br /><br /><br />&nbsp;</p>dblackmon@ksmcpa.com (Donna Blackmon)Wed, 22 Feb 2012 14:30:00 GMTWork Opportunity Tax Credit Now Available to Qualified Tax-Exempt Organizationshttp://www.ksmcpa.com/news-blog/work-opportunity-tax-credit-now-available-to-qualified-tax-exempt-organizations
<p>The VOW to Hire Heroes Act of 2011 provides an expanded Work Opportunity Tax Credit (WOTC) to businesses that hire eligible unemployed veterans and for the first time also makes the credit available to certain tax-exempt organizations.</p><p>The Act allows employers, including qualified tax-exempt organizations, to claim the credit for qualified veterans who begin work on or after Nov. 22, 2011, and before January 1, 2013.</p><p>The credit is claimed as a credit against the employer&#39;s share of social security tax by separately filing <a href="http://cl.exct.net/?qs=82b20702fb1bd22444785e3494a3c8dbc364f285876e4a80325deaf81aacce5e" title="Form 5884-C">Form 5884-C</a>, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.</p><p><a href="http://cl.exct.net/?qs=82b20702fb1bd224807affbe66ac4b8f28f602a99f742f48d5c9d316ae9605e6" title="IRS Notice 2012-13">IRS Notice 2012-13</a> contains additional guidance for tax-exempt employers claiming the credit.</p><p>Note: For purposes of the credit, a qualified tax-exempt organization is &quot;an employer that is an organization described in section 501(c) and exempt from taxation under section 501(a).&quot;</p><p>For more information, including how to claim the credit, read the IRS <a href="http://cl.exct.net/?qs=82b20702fb1bd22438332a25aadf5faff20a0a4f0f328171ae32fc21d992a694" title="news release">news release</a> and <a href="http://cl.exct.net/?qs=82b20702fb1bd2249b9655275a8b8255358c766ad43f1e47c7e451c5f3eab310" title="related material">related materials</a> (including FAQs), or contact your KSM advisor.</p><p><em>Source: Internal Revenue Service</em><br /><br /><br />&nbsp;</p>dblackmon@ksmcpa.com (Donna Blackmon)Wed, 15 Feb 2012 12:14:00 GMTState & Local Tax Update - 2/3/12http://www.ksmcpa.com/news-blog/state-local-tax-update-2-3-12
<p><strong>Indiana Use Tax Not Due on Promotional Items</strong>:&nbsp;An Indiana corporation was not liable for use tax on items it manufactured and pulled from its inventory in Indiana for use as promotional items in other states because the items were only temporarily stored in Indiana for subsequent use outside Indiana. The items were consumed in the course of demonstrations at non-Indiana locations. The products did not return to Indiana. This is temporary storage for use outside Indiana and does not constitute storage subject to Indiana use tax. See LOF 04-20110134 for more information.</p><p><strong>Connecticut To Issue Debit Cards for Refunds</strong>: The CT Department of Revenue Services will issue personal income tax refunds in the form of debit cards, rather than checks, to taxpayers who do not use direct deposit. DRS has contracted with JP Morgan Chase to administer the debit card program. Taxpayers will have to call Chase to activate the card and select a PIN. The debit card can be used at ATMs; banks and credit unions displaying the VISA logo; gas stations and retail locations that accept VISA. If the taxpayer does not activate the debit card within 365 days, the debit card account will be closed and the available balance will be returned to DRS. If the debit card is activated and a balance remains, after the 12th consecutive month of inactivity (365 consecutive days of inactivity), Chase will begin charging an inactivity fee of $1.00 per month.&nbsp;Visit the <a href="http://www.ct.gov/drs/cwp/view.asp?a=1462&amp;Q=491676">FAQs</a> for more information on the program.</p><p><strong>Kentucky Requires Estimates of Nonresident Withholding for 2012</strong>: Effective for taxable years beginning after December 31, 2011, every pass-through entity required to withhold Kentucky income tax will be required to make a declaration and pay estimated tax if : (1) the nonresident individual owner&#39;s tax liability can reasonably be expected to exceed $500; and/or (2) a corporate owner doing business in Kentucky only through its ownership interest in a pass-through entity has a tax liability that can reasonably be expected to exceed $5,000. When withholding on the distributable share income of nonresident individuals, estates, trusts and corporations, no withholding is made for partners or members that are pass-through entities. The distributive share income will continue to pass through as Kentucky source income requiring withholding at each level of each pass-through entity of multiple tier structures. Therefore, withholding, as well as the calculation to determine if an entity is required to make declaration payments, will be at each level of the structure using only the nonresident individual and corporations doing business in Kentucky only through their ownership interest in the pass-through entity. Trusts and estates are entities treated as individuals and are included in the withholding requirement. See <a href="http://www.revenue.ky.gov/NR/rdonlyres/18F82008-9186-425D-8100-020306976A2B/0/KYTaxAlertJan2012.pdf">KY Tax Alert 1</a> for additional information.</p>jcody@ksmcpa.com (Jenina Cody)Fri, 03 Feb 2012 14:58:00 GMTState & Local Tax Update - 1/20/12http://www.ksmcpa.com/news-blog/state-local-tax-update-1-20-12
<p><strong>Indiana Updates Sales Tax Guidance for Colleges and Universities</strong>:&nbsp; The IDOR has revised <a href="http://www.in.gov/dor/reference/files/sib68.pdf">Information Bulletin 68</a> concerning nonprofit and state colleges and universities to include separate sales tax treatment for colleges and universities that operate as nonprofit organizations and those that operate as governmental agencies. Indiana state colleges and universities that are nonprofit organizations or governmental agencies are entitled to certain exemptions from sales and use tax for purchases and sales that support the exempt government function or educational mission of the institutions. Transactions that do not support the exempt educational mission of a nonprofit educational institution or that are associated with a proprietary activity on the part of a state government educational institution are subject to tax. The bulletin details: purchases and sales by nonprofit colleges and universities; purchases and sales by state colleges and universities; application of the key terms &ldquo;educational materials,&rdquo; &ldquo;proprietary activity,&rdquo; &ldquo;accommodations,&rdquo; and &ldquo;student&rdquo;; furnishing or selling intrastate telecommunication services; and student organizations at state colleges and universities.</p><p><strong>Missouri Upholds Use Tax on Repair Parts</strong>: The MO Sup Ct. held that a company that provides maintenance and repair services for mainframe computers is liable for use tax on parts it purchased and used in fulfilling maintenance contracts because it engaged in taxable use in MO. The company did not just store the parts temporarily in MO, but unpacked, inspected, tested, and repackaged the parts then certified them for use and shipped them to its customers. Further, it was not entitled to resale exemption because it did not purchase the parts for subsequent taxable sale. For more information, see <em><a href="http://www.courts.mo.gov/sup/index.nsf/0/35a72476e5834be1862578d4006b5265/$FILE/SC91415_Director_of_Revenue_brief.pdf">Custom Hardware Engineering &amp; Consulting Inc. v. Director of Revenue</a>.</em></p>jcody@ksmcpa.com (Jenina Cody)Fri, 20 Jan 2012 15:40:00 GMT2012 IRS Workshops for Small and Medium-Sized 501(c)(3) Organizationshttp://www.ksmcpa.com/news-blog/2012-irs-workshops-for-small-and-medium-sized-501-c-3-organizations
<p>Start off the new year right by planning to attend one of the Internal Revenue Service&#39;s (IRS) workshops for small and mid-sized 501(c)(3) organizations.</p><p>Registration is now available for the following workshops:</p><p><a href="http://www.auburn.edu/outreach/opce/taxinstitute/stayexempt.htm" target="_blank">Montgomery, AL</a> (Jan. 24, 2012) and <a href="http://www.auburn.edu/outreach/opce/taxinstitute/stayexempt.htm" target="_blank">Mobile, AL</a> (Jan. 26, 2012) hosted by Auburn University</p><p><a href="http://speairsworkshop.webs.com/bloomington.htm" target="_blank" title="Bloomington, IN">Bloomington, IN</a> (Feb. 28) and <a href="http://cicfirsworkshop.eventbrite.com/" target="_blank" title="Indianapolis, IN">Indianapolis, IN</a> (Feb. 29, 2012) hosted by the Indiana University - Bloomington School of Public and Environmental Affairs and the Center on Philanthropy at Indiana University</p><p><a href="http://cepsenroll.shu.edu/dev_students.asp?action=coursedetail&amp;id=2570&amp;main=Professional+Development&amp;sub1=IRS+Nonprofit+Workshop&amp;misc=947&amp;courseinternalaccesscode=&amp;coursetype=0" target="_blank" title="South Orange, NJ">South Orange, NJ</a> (March 14, 2012) hosted by Seton Hall University</p><p><a href="http://eventsbot.com/events/eb703519590" target="_blank" title="Glassboro, NJ">Glassboro, NJ</a> (March 15, 2012) hosted by Rowan University</p><p>For more information on additional workshops, please visit the <a href="http://www.irs.gov/charities/article/0,,id=234956,00.html" target="_blank" title="IRS website">IRS website</a>.</p><p>Each one-day workshop, presented by experienced IRS exempt organizations specialists, will explain what 501(c)(3) organizations must do to keep their tax-exempt status and comply with tax obligations. This popular introductory workshop is designed especially for administrators or volunteers who are responsible for an organization&#39;s tax compliance as well as those interested in careers in the nonprofit sector.</p><p><em>Source: Internal Revenue Service</em></p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 18 Jan 2012 22:21:00 GMTElectronic Filing of Some Tax-Exempt Forms Delayed to March 30http://www.ksmcpa.com/news-blog/electronic-filing-of-some-tax-exempt-forms-delayed-to-march-30
<p>The Internal Revenue Service (IRS) recently announced that the filing date for tax-exempt organizations with annual returns due in January and February will be March 30, 2012.</p><p>The extension applies to organizations that electronically file Forms 990, 990-EZ, 990-PF, or 1120-POL. Form 990-N filers are not affected and no form needs to be filed to get the March 30 extension.</p><p>The IRS explained that it moved the filing deadline because the part of the service&#39;s modernized e-File system will be offline during January and February.</p><p>The IRS has issued <a href="http://www.irs.gov/pub/irs-drop/n-12-04.pdf" target="_blank" title="Notice 2012-4">Notice 2012-4</a>, which provides more details about the deadline extension.</p><p><em>Source: Internal Revenue Service</em></p>cdjonlich@ksmcpa.com (Chris Djonlich)Wed, 18 Jan 2012 21:16:00 GMTState & Local Tax Update - 1/13/12http://www.ksmcpa.com/news-blog/state-local-tax-update-1-13-12
<p><strong>Indiana and Amazon Agree on Tax Collection</strong><br />Indiana Governor Mitch Daniels has announced that amazon.com will begin collecting Indiana sales tax on Internet purchases under an agreement reached between Amazon and the IDOR. Amazon will voluntarily begin to collect and remit Indiana sales tax beginning Jan. 1, 2014, or 90 days from the enactment of federal legislation, whichever is earlier. Indiana will not assess the company for sales tax for other periods. See <a href="http://www.in.gov/activecalendar/EventList.aspx?view=EventDetails&amp;eventidn=50510&amp;information_id=101251&amp;type=&amp;syndicate=syndicate" target="_blank">the governor&#39;s news release</a> for additional details.</p><p><strong>Michigan Amends Apportionment Calculation</strong><br />Effective Jan. 1, 2012, the Michigan sales factor numerator of a corporate taxpayer must include its proportionate share of the total sales in Michigan of a flow-through entity that is unitary with the taxpayer. The denominator of a taxpayer must include its proportionate share of the total sales everywhere of a flow-through entity that is unitary with the taxpayer. A flow-through entity is unitary with a taxpayer when that taxpayer owns or controls, directly or indirectly, more than 50 percent of the ownership interests with voting rights or ownership interests that confer comparable rights to voting rights of the flow-through entity, and that has business activities or operations which result in a flow of value between the taxpayer and the flow-through entity, or between the flow-through entity and another flow-through entity unitary with the taxpayer, or has business activities or operations that are integrated with, are dependent upon, or contribute to each other. Sales between a taxpayer and flow-through entities unitary with that taxpayer, or between flow-through entities unitary with a taxpayer, must be eliminated in calculating the sales factor. See <a href="http://www.legislature.mi.gov/documents/2011-2012/billenrolled/Senate/pdf/2011-sNB-0673.pdf" target="_blank">SB 673</a> for details of the new law.</p><p><strong>Michigan to Follow Federal Classification for Disregarded Entities</strong><br />Effective retroactive for taxes levied on and after Jan. 1, 2008, Michigan law has been amended to provide that a person that is a disregarded entity for federal income tax purposes under the Internal Revenue Code must be classified as a disregarded entity for purposes of the MBT. This legislation negates the requirement outlined in <a href="http://michigan.gov/documents/taxes/Second_Revised_Notice_-_Disregarded_Entities_365374_7.pdf" target="_blank">Notice to Taxpayers Regarding Federally Disregarded Entities </a>for entities to amend prior year MBT returns to separate activities of disregarded entities resulting from the <em>Kmart</em> decision. See <a href="http://www.legislature.mi.gov/documents/2011-2012/publicact/htm/2011-PA-0305.htm" target="_blank">SB 369</a> for additional information.</p>jcody@ksmcpa.com (Jenina Cody)Fri, 13 Jan 2012 22:53:00 GMTReporting of 2011 Organizational Actions Affecting Basis of Securities Due January 17http://www.ksmcpa.com/news-blog/reporting-of-2011-organizational-actions-affecting-basis-of-securities-due-january-17
<p>The IRS has released a new form, Form 8937, for the reporting of transactions that affect a security holder&#39;s basis. Examples of transactions that may require Form 8937 are stock splits, stock dividends, nontaxable dividends, mergers, and acquisitions. <strong>This form is required retroactively to report transactions occurring on or after Jan. 1, 2011.</strong></p><p>Form 8937 has two parts. Part I is the general information regarding the reporting entity. Part II requires the information related to the specific transaction.</p><p><strong>Who must file:</strong> Any taxpayer that takes an organizational action that affects the basis of all holders of the security.</p><p><strong>Exceptions:</strong> Form 8937 is not required to be filed with the IRS if, by the due date of the form, a completed Form 8937 is posted to a primary public website. In addition, the form is not required if all the holders of the security are exempt recipients.</p><p><strong>Special rules: </strong>S corporations can satisfy the reporting requirement by reporting any actions that affect the basis of the stock on a timely filed Schedule K-1 for each shareholder and timely gives a copy to all proper parties. A real estate investment trust (REIT) that reports undistributed capital gains to shareholders on Form 2439 satisfies the reporting requirements if Form 2439 is timely filed and given to all the proper parties.</p><p><strong>Due date:</strong> For transactions occurring during 2011, the form is <strong><u>due Jan. 17, 2012.</u></strong> For transactions occurring after Dec. 31, 2011, the due date for Form 8937 is the earlier of: (1) the 45th day following the transaction; or (2) Jan. 15th of the year following the calendar year of the transaction.</p><p>For more information, please contact your KSM advisor.</p>cdjonlich@ksmcpa.com (Chris Djonlich)Fri, 13 Jan 2012 20:03:00 GMTDOL Raises the Stakes for the Audit Quality Initiativehttp://www.ksmcpa.com/news-blog/dol-raises-the-stakes-for-the-audit-quality-initiative
<p>The Department of Labor (DOL) is intensifying its audit initiatives for employee benefit plans (both retirement plans and health and welfare plans). DOL has two primary initiatives. First, DOL targets and selects plans based on its own internal criteria which it does not share with the public. Second, DOL selects audits performed on &quot;large&quot; plans with over 100 participants and &quot;audits the auditor&quot; by examining the workpapers of the audit firm who performed the audit.</p><p>In either case, DOL may reject a Form 5500 filing found to be incomplete or inadequate. Penalties can be as high as $1,100 per day (capped at $50,000).</p><p>Plan Administrators need to be diligent in selecting an auditor for their benefit plan audits who adheres to the highest standards of quality and has considerable experience auditing employee benefit plans. The audit firm should be a member in good standing of the AICPA Employee Benefit Plan Audit Quality Ceneter.</p><p>In order to monitor the outcome of an employee benefit audit, the Plan Administrator should ask the auditor:</p><ul><li>Whether plan assets are reported at fair value;</li><li>Whether contributions were made completely and in a timely manner;</li><li>Whether benefit payments were made in accordance with plan provisions;</li><li>Whether assets have been properly allocated to participant accounts;</li><li>Whether the tax status of the plan has been compromised; and</li><li>Whether any transactions prohibited under ERISA were noted.</li></ul><p>A quality audit of an employee benefit plan is in the best interests of plan participants and fulfills a fiduciary obligation of the Plan Sponsor.</p>jcody@ksmcpa.com (Jenina Cody)Mon, 09 Jan 2012 10:28:00 GMTHeaton in Indianapolis Business Journal: Independent Doctors Fear Loss of Referralshttp://www.ksmcpa.com/news-blog/heaton-in-indianapolis-business-journal-independent-doctors-fear-loss-of-referrals
<p>Some health care experts are asking whether patient referrals from hospital-owned doctors to independent facilities will become a rarity as the consolidation of hospitals and doctors continues. If they do, it could render independent medical practices scarce.</p><p>It&rsquo;s getting harder and harder for medical practices to remain independent as overhead costs rise even as reimbursements remain flat. That has pushed a steady stream of physicians and other health care providers into the arms of hospitals over the past three years, both in Indianapolis and around the country.<br /><br />In addition, the federal Medicare program for seniors&mdash;the nation&rsquo;s largest health plan&mdash;is giving bonuses and other financial incentives to health care providers who jointly take responsibility for the health of specific patients and successfully show that they deliver high-quality care at low costs.<br /><br />That development, which has been mimicked by some private health plans, has fueled even more consolidation among hospitals and doctors.</p><p>Health plans pay hospitals more money than independent physician and therapist practices to compensate for unfunded requirements in federal law, which other health care providers do not face.<br /><br />For example, hospitals must stabilize patients before referring them to another facility. Hospitals also must be open 24 hours a day. And hospitals must accept all government-sponsored health plans, such as the poorly paying Medicaid program.<br /><br />But when hospitals acquire physician practices or other outpatient facilities, they don&rsquo;t start operating them 24 hours a day and they don&rsquo;t necessarily start accepting Medicaid patients. But they do start billing health plans under the auspices of the hospital, thereby collecting higher reimbursement payments while still enjoying the lower operating costs of physician offices.<br /><br />Federal laws do not allow hospitals to directly reward physicians&mdash;even their own employees&mdash;for referring patients to other doctors or facilities owned by the hospital system. But they can ask&mdash;and they do.<br /><br />St. Francis Medical Group, part of the Mishawaka-based Franciscan Alliance hospital system, includes provisions in its employment contracts that require doctors to refer patients to other providers in the Franciscan Alliance&mdash;except if a patient or a health plan requests otherwise, said Dr. Isaac J. Myers II, president of the medical group.<br /><br />Exceptions are also allowed if Franciscan cannot provide care as soon as the patient needs, or if Franciscan doesn&rsquo;t have the particular specialist needed by the patient.<br /><br />Such policies are common in hospitals&rsquo; employment agreements with physicians, said Mike Heaton, a physician accountant at Indianapolis-based Katz Sapper &amp; Miller. Referrals are key because they keep a hospital&rsquo;s operating rooms and beds filled with patients.</p><p>This article excerpted from the&nbsp;<em>Indianapolis Business Journal</em>. For the full text, <a href="http://media.ibj.com/ibj/mobile-default/article.php?articleId=31415" target="_blank">please click here</a>.</p>jlmoore@ksmcpa.com (Jennifer Moore)Mon, 19 Dec 2011 22:39:00 GMTRepeal of Withholding for Government Contractorshttp://www.ksmcpa.com/news-blog/repeal-of-withholding-for-government-contractors
<p>In 2005, a provision for withholding 3% on every payment made to a government contractor was placed into law. This would have affected payments received from the federal government, state governments, local governments and state agencies. In 2010, this provision was deferred until 2011 and, subsequently, deferred to 2012.</p><p>On November 21, the president signed a law that repealed the 3% withholding requirement for payments made after 2011. In explaining the reasons for repeal, the House Ways and Means Committee looked at the economic impact on contractors - including a reduction in cash flow - and the potential for small businesses to adjust the pricing to address the change in cash flow. The committee also looked at the substantial costs of the government to withhold on the payments being made to the contractor.</p>jlmoore@ksmcpa.com (Jennifer Moore)Thu, 15 Dec 2011 03:19:00 GMTUnreimbursed Education Expenses Deductionhttp://www.ksmcpa.com/news-blog/unreimbursed-education-expenses-deduction
<p>The state of Indiana recently released new legislation that entitles an individual tax deduction for up to $1,000 per dependent child for unreimbursed education expenditures. These expenditures include costs for tuition, fees, software, textbooks and school supplies for dependent children in grades K-12 enrolled in private school or who are homeschooled. This legislation is retroactive for year 2011 so the deduction can be made on the parent&rsquo;s 2011 tax return.<br />&nbsp;<br />For more information on this deduction, please see the&nbsp;<a href="http://www.in.gov/dor/reference/files/ib107.pdf" target="_blank">information bulletin</a> released by the Indiana Department of Revenue or contact your KSM advisor.<br /><br />&nbsp;</p>jcody@ksmcpa.com (Jenina Cody)Thu, 01 Dec 2011 00:00:00 GMTSurvey Finds Indiana's Manufacturing Sector Recovering and Moving Forwardhttp://www.ksmcpa.com/news-blog/survey-finds-indiana-s-manufacturing-sector-recovering-and-moving-forward
<div>The certified public accounting firm of Katz, Sapper &amp; Miller LLP today released the results of their annual Indiana manufacturing survey. This study of small- to medium-size manufacturing companies was commissioned by Katz, Sapper &amp; Miller and developed in partnership with Indiana University&#39;s Kelley School of Business - Indianapolis, Conexus Indiana, and the Indiana Manufacturers Association.</div><div><br />The results from this year&rsquo;s survey, <em>2011 Indiana Manufacturing Survey: Performance, Practice and Strategy</em>, indicate that Hoosier manufacturers are strong and getting stronger.</div><div><br />&ldquo;This study has some of the most encouraging findings we&#39;ve seen in years,&rdquo; said Scott Brown, partner-in-charge of Katz, Sapper &amp; Miller&rsquo;s Manufacturing and Distribution Services Group. &ldquo;It suggests that many Indiana manufacturers are once again investing in their businesses and holding their own against the competition. Such investments and improvements are the key to Hoosier manufacturers remaining successful.&quot;</div><div><br />Other key findings reveal:</div><ul><li>A majority of Indiana&#39;s manufacturers reported &quot;healthy&quot; or &quot;stable&quot; financial performance over the past two years. Equally encouraging, the waves of cost-cutting in recent years by manufacturers now appear to be rapidly receding, with less than 25 percent of survey respondents reporting cost-cutting as their strategy for future financial success. Additionally, 60 percent of Hoosier manufacturers reported that they are now increasing investments across the business and in areas essential for revenue growth.</li><li>When asked about future financial priorities, the top three goals of Indiana manufacturers are: 1) improving cash flow and working capital management; 2) improving short- and long-term operational efficiencies; and 3) accessing credit for working capital. All of these strategies are designed to not only improve financial health but also help ensure survival in today&#39;s demanding business environment.</li><li>In terms of job growth for 2011 and beyond, 11 percent of survey respondents plan to open new manufacturing facilities in the next two years. Of those respondents, all favored Indiana over other locations due to Indiana&#39;s workforce, central U.S. location and transportation network. Just as encouraging, 13 percent of respondents reported that they anticipate relocating or &quot;onshoring&quot; some manufacturing back to America in the next several years. Chief among those reasons cited were obtaining better control over production, closer proximity to major customers and markets, and reduced total &quot;landed&quot; costs.</li></ul><div>The survey also revealed specific business, manufacturing and supply-chain strategies for manufacturing to be competitive. First, superior product design and customer service are keys to new growth. Second, smart manufacturing and process improvements lead to financial success. Third, supply chain integration is linked to better customer service and inventory control. Together, these findings suggest that the roadmap for successful manufacturing consist of:</div><ul><li>Crafting a business strategy that features superior design and delivery for new products as well as outstanding customer service for more mature goods.</li><li>Picking a path in terms of manufacturing improvement. The strongest strategies are those featuring either advanced smart manufacturing technologies or process improvements (or both).</li><li>Leveraging upstream suppliers and downstream customers in the supply chain. Since no manufacturing company operates in a vacuum, manufacturers working together with their customers, suppliers and transportation providers reported significantly better performance versus those that do not.</li></ul><div>To view the complete results of the <em>2011 Indiana Manufacturing Survey: Performance, Practice and Strategy</em>, <a href="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/33380572-77b1-45e7-b705-58e82334c62b/2011-manufacturing-survey-final-small.pdf" target="_blank">click here</a>.</div><div align="center"><br />###</div><div><br /><strong>About Katz, Sapper &amp; Miller </strong></div><div>As one of the top 65 CPA firms in the nation, Katz, Sapper &amp; Miller has earned a reputation as a leader in the areas of accounting, tax and consulting services. Founded in 1942, the firm has more than 250 employees and is located in Indianapolis and Fort Wayne, Indiana. Katz, Sapper &amp; Miller was named one of the &ldquo;Best of the Best&rdquo; accounting firms in the nation by <em>INSIDE Public Accounting</em> magazine and has been recognized by the Indiana Chamber of Commerce as one of the &ldquo;Best Places to Work in Indiana&rdquo; for six consecutive years. The firm is an independent member of Nexia International, a leading global organization of independent accounting and consulting firms.</div><div>&nbsp;</div><div><strong><span>About the <a href="http://www.kelley.iupui.edu/" target="_blank"><strong><span>Kelley School of Business - Indianapolis</span> </strong></a></span></strong><div>The IU Kelley School of Business has been a leader in American business education for more than 80 years. With an enrollment of more than 4,800 undergraduate and nearly 2,000 graduate students across two campuses, it is among the premier business schools in the country. Kelley&rsquo;s Indianapolis campus, based at IUPUI, is home to the school&rsquo;s Evening MBA, Master of Science in Accounting, and Master of Science in Taxation programs and a full-time undergraduate program. The part-time Evening MBA program recently was ranked 11th in the country by U.S. News and World Report.</div></div><div>&nbsp;</div><div><strong>About&nbsp;<a href="http://www.conexusindiana.com/" target="_blank">Conexus Indiana</a> </strong></div><div>Launched by the Central Indiana Corporate Partnership, Conexus Indiana is the state&#39;s advanced manufacturing and logistics initiative, dedicated to making Indiana a global leader.&nbsp; Conexus is focused on strategic priorities like workforce development, creating new industry partnerships and promoting Indiana&#39;s advantages in manufacturing and logistics.</div><div>&nbsp;</div><div><strong>About the&nbsp;<a href="http://www.imaweb.com/" target="_blank">Indiana Manufacturers Association</a> </strong></div><div>Formed in 1901, the Indiana Manufacturers Association is the second oldest manufacturers association in the country and the only trade association in Indiana that exclusively focuses on manufacturing. The Indiana Manufacturers Association is dedicated to advocating for a business climate that creates, protects, and promotes quality manufacturing jobs in Indiana. Indiana is one of the top manufacturing states in America in the wealth and jobs created, sustained, and supported.&nbsp; More than 50 percent of all employment in Indiana has some connection to manufacturing.</div><div><br />The staff of the Indiana Manufacturers Association has more than 160 years of combined governmental affairs experience and is recognized as experts in many areas, including tax, environment, labor relations, human resources, and healthcare.</div><p><br /><br /><br />&nbsp;</p>jcody@ksmcpa.com (Jenina Cody)Thu, 10 Nov 2011 00:00:00 GMTYear-End Tax Planninghttp://www.ksmcpa.com/news-blog/year-end-tax-planning
<div>As each year comes to a close, Americans scamper to unearth tax deductions that have escaped their grasp until this point. It is an adage as old as time &ndash; or at least since The Revenue Act of 1861 was passed. This year is no different. In fact, due to the uncertain future of our tax laws, 2011 may prove to be one of the most beneficial years to plan accordingly.</div><div>&nbsp;</div><div>Here are some recommendations to maximize tax efficiency in 2011 and beyond:</div><div>&nbsp;</div><div><strong>Debt Cancellation</strong></div><div>If possible, and if the circumstances so warrant, defer the debt cancellation until Jan. 1, 2012. Deferral of this event will typically provide increased opportunities to plan for the adverse tax consequences associated with cancellation of debt events.</div><div>&nbsp;</div><div><strong>Qualified Higher Education Expenses</strong></div><div>Unless extended by Congress, the up-to-$4,000 deduction for qualified higher education expenses will expire at the end of 2011. As a result, individuals should consider prepaying eligible expenses if doing so will increase the deduction. The deduction is generally allowed for qualified education expenses paid in 2011 in connection with enrollment at an institution of higher education.</div><div>&nbsp;</div><div><strong>Traditional IRA Conversion to Roth</strong></div><div>If you think that a Roth IRA is better than a traditional IRA, and you plan to remain in the market long-term, consider converting your traditional IRA (depressed valued stocks and mutual funds) into a Roth IRA, if eligible, because it will result in greater taxable income for 2011; however, your assets will increase in value tax-free under the Roth structure. This action is particularly attractive if you believe tax rates will increase in future years.</div><div>&nbsp;</div><div><strong>Realize Losses on Stock</strong></div><div>Sell a depressed stock holding and repurchase the same holding 31 days later, which will allow you to take the loss in 2011. The obvious risk is that the stock appreciates during the period (31 days) that you are not an owner. Furthermore, this loss will only be allowed to the extent of your net capital gains plus $3,000. Any disallowed losses will carry forward to future tax years.</div><div>&nbsp;</div><div><strong>Purchase Qualified Small Business Stock (QSBS)</strong></div><div>There is no tax on gain from the sale of QSBS if it is purchased before Jan. 1, 2012, and held for more than five years. To qualify for this break, the stock must be issued by a regular &#39;C&#39; corporation with total gross assets of $50M or less (amongst other requirements).</div><div>&nbsp;</div><div><strong>If You Own Partnership or S-Corporation Interests with Suspended Losses</strong></div><div>S-Corporation: Consider making a contribution to the entity to increase basis so the losses can be recognized in 2011. You may also be able to make loans to the entity that will provide you with basis and allow otherwise suspended losses to be recognized in 2011.</div><div>&nbsp;</div><div>Partnership: Consider making a contribution to the entity to increase basis so the losses can be recognized in 2011. Additionally, consider other debt arrangements which will increase basis and free up losses.</div><div>&nbsp;</div><div><strong>Energy Credit</strong></div><div>Homeowners: Consider making energy saving improvements before Jan. 1, 2012. A tax credit may be available if these improvements are made in 2011.</div><div>&nbsp;</div><div><strong>Annual Gift Exclusion</strong></div><div>If you have not done so already, consider making a gift of up to $13,000 per individual donee (spouses can give a combined $26,000 per individual donee). Qualifying gifts will not be subject to gift or estate taxes as they are below the annual gift tax exclusion amount. In order to utilize the 2011 annual gift tax exclusion, the gift must be made in 2011. Taxpayers are not permitted to carry the exclusion forward.</div><div>&nbsp;</div><div><strong>Time Is Expiring</strong></div><div>With just weeks remaining in 2011, individuals should be considering these planning opportunities today. Each opportunity is dependent upon the individual&#39;s particular situation, so please consult your Katz, Sapper &amp; Miller tax advisor before effectuating any of them.<br />&nbsp;</div>jcody@ksmcpa.com (Jenina Cody)Wed, 02 Nov 2011 00:00:00 GMTIRS Announces Retirement Plan Limitations for 2012http://www.ksmcpa.com/news-blog/irs-announces-retirement-plan-limitations-for-2012
<p><span>The Internal Revenue Service recently announced the annual Cost-of-Living Adjustments (COLA) for retirement plans and related limitations for the 2012 tax year. Several of the following limits have changed for 2012 compared to the 2011 limits.</span></p><table border="0" cellpadding="0" cellspacing="0" width="100%"><tbody><tr><td>&nbsp;</td><td>&nbsp;</td><td>&nbsp;</td></tr><tr><td>&nbsp;</td><td><p align="center"><strong><u><span>2012</span></u></strong></p></td><td><p align="center"><strong><u><span>2011</span></u></strong></p></td></tr><tr><td><p><strong><span>Social Security Taxable Wage Base</span></strong></p></td><td><p><span>$110,100</span></p></td><td><p><span>$106,800</span></p></td></tr><tr><td><p><strong><span>Medicare Taxable Wage Base</span></strong></p></td><td><p><span>No Limit</span></p></td><td><p><span>No Limit</span></p></td></tr><tr><td><p><strong><span>Compensation (Plan Limit)</span></strong></p></td><td><p><span>$250,000</span></p></td><td><p><span>$245,000</span></p></td></tr><tr><td><p><strong><span>Compensation (SEP)</span></strong></p></td><td><p><span>$550</span></p></td><td><p><span>$550</span></p></td></tr><tr><td><p><strong><span>Defined Benefit Limit (415)</span></strong></p></td><td><p><span>$200,000</span></p></td><td><p><span>$195,000</span></p></td></tr><tr><td><p><strong><span>Defined Contribution Limit (415)</span></strong></p></td><td><p><span>$50,000</span></p></td><td><p><span>$49,000</span></p></td></tr><tr><td><p><strong><span>401(k) and 403(b) Contribution Limit</span></strong></p></td><td><p><span>$17,000</span></p></td><td><p><span>$16,500</span></p></td></tr><tr><td><p><strong><span>401(k) and 403(b) Catch Up Contribution Limit (over age 50)</span></strong></p></td><td><p><span>$5,500</span></p></td><td><p><span>$5,500</span></p></td></tr><tr><td rowcoord="10"><p><strong><span>SIMPLE Contribution Limit</span></strong></p></td><td rowcoord="10"><p><span>$11,500</span></p></td><td rowcoord="10"><p><span>$11,500</span></p></td></tr><tr><td rowcoord="11"><p><strong><span>SIMPLE Catch up Contribution Limit (over age 50)</span></strong></p></td><td rowcoord="11"><p><span>$2,500</span></p></td><td rowcoord="11"><p><span>$2,500</span></p></td></tr><tr><td rowcoord="12"><p><strong><span>Highly Compensated Employee Definition (prior year)</span></strong></p></td><td rowcoord="12"><p><span>$115,000</span></p></td><td rowcoord="12"><p><span>$110,000</span></p></td></tr><tr><td rowcoord="13"><p><strong><span>Maximum Deduction (% of Compensation) P/S and SEP Plans</span></strong></p></td><td rowcoord="13"><p><span>25%</span></p></td><td rowcoord="13"><p><span>25%</span></p></td></tr><tr><td rowcoord="14"><p><strong><span>IRA Contribution Limit (Traditional &amp; Roth)</span></strong><span> </span></p></td><td rowcoord="14"><p><span>$5,000</span></p></td><td rowcoord="14"><p><span>$5,000</span></p></td></tr><tr><td rowcoord="15"><p><strong><span>IRA Catch Up Contribution Limit (Over Age 50)</span></strong></p></td><td rowcoord="15"><p><span>$1,000</span></p></td><td rowcoord="15"><p><span>$1,000</span></p></td></tr><tr><td rowcoord="16">&nbsp;</td><td rowcoord="16">&nbsp;</td><td rowcoord="16">&nbsp;</td></tr><tr><td rowcoord="17">&nbsp;</td><td rowcoord="17">&nbsp;</td><td rowcoord="17">&nbsp;</td></tr></tbody></table><div align="center"><hr align="center" noshade="noshade" size="1" width="100%" /></div><p><span>For&nbsp;questions regarding your&nbsp;retirement plan, please contact any of the members of our <a href="http://www.ksmcpa.com/employee-benefit-plans" >Employee Benefit Plan Services Group</a>.</span></p>jcody@ksmcpa.com (Jenina Cody)Mon, 24 Oct 2011 00:00:00 GMTState of Indiana Updates Information Bulletin 11http://www.ksmcpa.com/news-blog/state-of-indiana-updates-information-bulletin-11
<p>The state of Indiana has updated <a href="http://www.in.gov/dor/reference/files/sib11.pdf" target="_blank">Information Bulletin 11</a> to reflect its current policy on sales tax exemptions afforded to nonprofits and government entities. To qualify for the exemption, purchases made by nonprofit organizations as well as federal, state, and local government entities must be invoiced directly to and paid directly by the exempt nonprofit or government entity.</p>jcody@ksmcpa.com (Jenina Cody)Thu, 20 Oct 2011 02:12:00 GMTGoodwill Impairment Now Subject to Qualitative Assessmenthttp://www.ksmcpa.com/news-blog/goodwill-impairment-now-subject-to-qualitative-assessment
<p>In September 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-08, <em>Intangibles-Goodwill and Other (Topic 350)</em>, to provide for a qualitative approach in testing goodwill for impairment. The update was driven by concerns expressed by privately held companies that the existing two-step goodwill impairment test was both costly and complex.</p><p>The two-step process for calculating goodwill impairment continues to exist within Topic 350. Step One of the test is to calculate the fair value of the reporting unit and compare the calculated results to the carrying amount of the reporting unit, including goodwill. If the fair value of the reporting unit is less than the carrying amount of the reporting unit, then Step Two of the test is completed to determine the amount of the impairment loss, if any.</p><p>The amendments to Topic 350 now provide for a qualitative assessment before completing Step One of the previously existing impairment test. An entity now has the option to first assess qualitative factors to determine whether the existence of events and circumstances results in a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Examples of events and circumstances include the following:</p><ul><li>Macroeconomic conditions</li><li>Industry and market conditions</li><li>Cost factors with a negative effect on earnings and cash flows</li><li>Overall financial performance</li></ul><div>If an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. If the entity concludes otherwise, then the two-step test is performed as previously required by Topic 350. The more likely than not threshold is defined as having a likelihood of more than 50 percent. An entity does have the option to bypass the qualitative assessment to proceed directly to performing Step One of the two-step goodwill impairment test.</div><div>&nbsp;</div><div>Entities should start planning now to determine whether events and circumstances exist to support the qualitative assessment provided for by this amendment. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after Dec. 15, 2011, but early adoption is permitted.</div><div>&nbsp;</div><div>Please contact your KSM advisor for more information.<br />&nbsp;</div>jcody@ksmcpa.com (Jenina Cody)Thu, 13 Oct 2011 00:00:00 GMTBiernat Presents Webinar on Fair Market Value of Compensation – Appraisal Theory and Applicationshttp://www.ksmcpa.com/news-blog/biernat-presents-webinar-on-fair-market-value-of-compensation-appraisal-theory-and-applications
<div><p>Recently&nbsp;Randy Biernat presented &ldquo;Fair Market Value of Compensation &ndash; Appraisal Theory and Applications&rdquo; in a webinar sponsored by the <a href="http://www.cpaleadership.com/public/main.cfm" target="_blank">CPA Leadership Institute</a> and <a href="http://www.hcaa.com/public/default.asp" target="_blank">National CPA Health Care Advisors Association</a>. Randy&rsquo;s presentation addressed both the regulatory aspect of compensation valuation and the actual preparation of fair market value analyses for a variety of common arrangements.</p><p>Highlights of his presentation included:</p><ul><li>Healthcare Market Overview</li><li>Overview of Common Hospital-Physician Arrangements</li><li>Appraisal Process Overview</li><li>Regulatory Environment</li><li>Common Methodologies</li><li>Case Studies</li></ul><p>The webinar was attended by valuation and healthcare professionals looking to expand their knowledge regarding current valuation theory and application in compensation issues; and hospital financial managers involved in transactional matters.<br /><br />To purchase the full recording of the webinar, visit the <a href="http://www.cpaleadership.com/public/Fair_Market_Value_of_Compensation__Appraisal_Theory_and_Applications.cfm" target="_blank">program website</a>.</p></div><p>&nbsp;</p>jcody@ksmcpa.com (Jenina Cody)Fri, 07 Oct 2011 00:00:00 GMTNew Tax Case Tackles Key Aspects of Private Company Valuehttp://www.ksmcpa.com/news-blog/new-tax-case-tackles-key-aspects-of-private-company-value
<div><span><em>Estate of Gallagher v. Commissioner, T.C. Memo. 2011-148, 2001 WL 2559847 (U.S. Tax Court) (June 28, 2011) </em><br /><br />In the case of the estate of Gallagher v. Commissioner, the decedent owned 15 percent in a private Subchapter S corporation that held various newspaper assets. When she died in July 1994, her estate valued her 15 percent share at $35 million based on an appraisal by its CEO, but the Internal Revenue Service (IRS) said it was worth closer to $50 million. At trial before the Tax Court, both sides enlisted new appraisers and closed the gap slightly: $28 million for the taxpayer versus $41 million for the IRS. In particular, they disputed four broad aspects of the valuation.&nbsp;</span></div><div><p><span>To read this article and the full text of our <em>Valuation Services Group Bulletin</em>, <a href="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/7342b9d2-acb9-4e81-8a9f-f9140730bedf/valuation-services-bulletin_2011_fall.pdf" target="_blank">click here</a>.</span></p></div><p>&nbsp;</p>jcody@ksmcpa.com (Jenina Cody)Thu, 06 Oct 2011 00:00:00 GMTEase On Down the Road: Five Tips for Making Your Audit Less Stressfulhttp://www.ksmcpa.com/news-blog/ease-on-down-the-road-five-tips-for-making-your-audit-less-stressful
<div><span>This article offers five tips a nonprofit organization can use to make the audit experience run more smoothly for itself and its auditors. The article covers being ready with the information; having realistic expectations of what the auditor will and will not do; minimizing risks throughout the year; being prepared to handle any control deficiencies; and talking with the auditor on a regular basis, not just at audit time. </span><p><span>To read this article and the full text of our <em>Profitable Solutions for Nonprofits</em> newsletter, <a href="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/fa954822-1aa6-4857-a688-1867880cf81e/profitable-solutions-for-nonprofits_2011_fall.pdf" target="_blank">click here</a>.</span></p></div>jcody@ksmcpa.com (Jenina Cody)Tue, 27 Sep 2011 00:00:00 GMTFavorable Tax Provisions That May Sunset Dec. 31, 2011http://www.ksmcpa.com/news-blog/favorable-tax-provisions-that-may-sunset-dec-31-2011
<p>You never know what you have until it is gone. Given the volatile nature of national politics, many taxpayer-friendly provisions that are scheduled to sunset at the end of the year may either be allowed to expire or reinstituted with less favorable terms. With uncertainty in the air, taxpayers may wish to take advantage of programs by accelerating purchases, hiring, and making other business decisions.</p><p>Below are nine tax provisions that may sunset Dec. 31, 2011:</p><p><strong>100 Percent Bonus Depreciation</strong><br />Bonus depreciation allows for accelerated depreciation of certain qualified property. The 100 percent&nbsp;bonus depreciation allowance was written to apply to property that was placed in service between the dates of Sept. 9, 2010, and Dec. 31, 2011. The bonus depreciation allowance will be reduced to 50 percent beginning Jan. 1, 2012.</p><p><strong>15-Year Depreciation for Certain Realty Assets</strong><br />For a limited time, qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property were able to be depreciated over a 15-year term. For assets placed in service after Dec. 31, 2011, the depreciation period will be pushed back to 39 years.</p><div>&nbsp;</div><div><strong>Differential Wage Payment Credit for Employers</strong></div><div>The differential wage payment credit provides small business employers with a credit of up to 20 percent of the first $20,000 of differential wages paid to active duty service members. Only differential wages paid before Jan. 1, 2012, are eligible for the credit.</div><div>&nbsp;</div><div><strong>Expensing of Environmental Remediation Costs</strong></div><div>Under current law, taxpayers that bear costs in abating hazardous substances may be able to expense qualified environmental remediation expenses instead of capitalizing them. Remediation expenses paid or incurred after Dec. 31, 2011, will not be able to be expensed.</div><div>&nbsp;</div><div><strong>New Energy Efficient Home Credit</strong></div><div>The new energy efficient home credit provides certain contractors with a credit of $1,000 or $2,000 for the construction of a qualified new energy efficient home. The credit will not apply to homes acquired after Dec. 31, 2011.</div><div>&nbsp;</div><div><strong>New Markets Tax Credit</strong><br />The New Markets Tax Credit is a tool used to spur investment into projects located in targeted communities. A taxpayer who holds a qualified investment in a qualified community development entity may be entitled to a credit in the amount of 39 percent&nbsp;of the qualified equity investment. The program is set up with an annual limitation on the amount that may be designated, and the last limitation is for 2011.</div><div>&nbsp;</div><div><strong>Research Credit</strong></div><div>The research credit is used to incentivize companies that carry on research and development. It can provide a 20 percent&nbsp;tax credit for certain research expenditures, including qualified research expenditures, university basic research payments, and expenditures for qualified energy research. Only amounts paid or accrued before Jan. 1, 2012, may be used in calculating the credit.</div><div>&nbsp;</div><div><strong>Section 179 Expensing</strong></div><div>Section 179 permits property to be expensed rather than being capitalized. The maximum amount that can be expensed for tax years 2010 and 2011 is $500,000. Starting with 2012 tax year, the maximum amount will be reduced to $125,000. Further, there is an investment ceiling that reduces the expensing amount when taxpayers place additional property in service. The investment ceiling will drop from $2,000,000 to $500,000 for 2012.</div><div>&nbsp;</div><div><strong>Work Opportunity Tax Credit</strong></div><div>The Work Opportunity Tax Credit (WOTC) incentivizes employers to hire members of targeted groups such as veterans, summer youth, ex-felons, and governmental assistance recipients. The program generally provides a 40 percent&nbsp;tax credit on first-year wages up to $6,000, with variations for certain targeted groups. Eligible wages are limited to those individuals who begin work before Jan. 1, 2012.</div><div>&nbsp;</div><div><strong>Utilizing Favorable Tax Provisions</strong></div><div>With the threat of losing favorable tax provisions only months away, now is the time to consider whether you might be able to benefit from them. There are subtle distinctions in the provisions discussed above with respect to who can and cannot utilize them. We would be happy to discuss whether your business might benefit from any of the above programs.</div><div>&nbsp;</div><div>Please contact your KSM advisor for more information.</div>jcody@ksmcpa.com (Jenina Cody)Fri, 23 Sep 2011 00:00:00 GMTContinued Debate on Lease Accounting Changeshttp://www.ksmcpa.com/news-blog/continued-debate-on-lease-accounting-changes
<p>The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) (the Boards) jointly issued exposure drafts, Leases, on Aug. 17, 2010, which addressed accounting for leases by both the lessee and lessor. Since that date, the Boards have continued to discuss leases and have reached additional tentative decisions on lessee and lessor lease accounting.</p><p>The Boards&rsquo; objective of the lease project is to not only create common lease accounting requirements to ensure leases are recognized on the balance sheet, but also provide users of financial statements with useful and complete information about an entity&rsquo;s leasing transactions. Lease transactions are widely used as a financing tool in today&rsquo;s marketplace and have a major impact on the construction and real estate industries. The proposed changes will alter how both users of the financial statements and companies view lease transactions.</p><p><a href="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/d2ed7cde-10ad-4809-9ff2-7f58d7c50da6/creia_2011_issue-2.pdf" target="_blank">View Katz, Sapper &amp; Miller&rsquo;s <em>Construction and Real Estate Industry Advisor</em> to read more about the approach the exposure draft lays out for lessees to account for lease transactions.</a></p>jcody@ksmcpa.com (Jenina Cody)Thu, 01 Sep 2011 19:00:00 GMTCredit for Small Employer Health Insurance Premiumshttp://www.ksmcpa.com/news-blog/credit-for-small-employer-health-insurance-premiums
<p>Small nonprofit organizations may be eligible for a tax credit for health insurance premiums paid for tax years beginning in 2010. For tax-exempt small employers, the credit is 25 percent of employer paid premiums, is limited to the amount of certain payroll taxes paid, is limited to the state average premium chart, and cannot exceed the amount of payroll taxes for the organization.<br />A nonprofit is an eligible small employer if it meets the following requirements:</p><ul><li>Paid at least 50 percent of the premiums for employee health insurance coverage</li><li>Had fewer than 25 full-time equivalent employees (FTE) for the tax year</li><li>Paid average annual wages for the tax year of less than $50,000 per FTE</li><li>Tax-exempt credit requirement: The organization must be described under Section 501(c)</li></ul><p>Examples of qualifying health insurance coverage are as follows: medical care, dental plans, vision plans, nursing home plans, and home health care plans. Examples of coverage not allowed in calculation of the credit are as follows: workers&#39; compensation, automobile medical payment insurance, coverage for on-site medical clinics, and liability insurance.</p><p>The credit is claimed as a refundable credit on Form 990-T, Exempt Organization Business Income Tax Return.</p>jcody@ksmcpa.com (Jenina Cody)Mon, 15 Aug 2011 02:18:00 GMTForm 8955-SSA Updatehttp://www.ksmcpa.com/news-blog/form-8955-ssa-update
<p>On June 21, 2011, the Internal Revenue Service (IRS) released the new <a href="http://www.irs.gov/pub/irs-pdf/f8955ssa.pdf" target="_blank">2009 Form 8955-SSA</a>, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits, and its <a href="http://www.irs.gov/pub/irs-pdf/i8955ssa.pdf" target="_blank">instructions</a>. The new form replaces the Schedule SSA, which was previously filed with the Form 5500.</p><p>The new Form 8955-SSA is intended to be used to report information about plan separated participants with deferred vested including those that:</p><ul><li>have separated from service;</li><li>were reported as a deferred vested participant on another plan&#39;s filing if his or her benefits</li><li>were transferred (other than in a rollover) to the plan during the covered period;</li><li>were previously reported under the plan but have been paid out or are no longer entitled to those deferred vested benefits; or were previously reported under the plan but whose information is being corrected.</li></ul><p>Information reported on Form 8955-SSA is provided to the Social Security Administration (SSA). The SSA provides the information to participants when they file for Social Security benefits.</p><p>The general filing due date is the last day of the seventh month following the last day of the plan year, plus extensions (similar to the annual Form 5500). However, the due date for filing the 2009 and 2010 Form 8955-SSA is the later of January 17, 2012 or the due date of the 2010 form. Information for the 2009 and 2010 plan years can be combined on one form.</p><p>Plan administrators must file Form 8955-SSA with the IRS and not through the EFAST2 filing system. EFAST2 filings are posted on the Internet and the Form 8955-SSA includes Social Security numbers. Due to privacy concerns, sensitive participant information cannot be posted on the Internet.</p><p>Note that the Form 8955-SSA is not required to be filed for a plan year if there is no information to report.</p>jcody@ksmcpa.com (Jenina Cody)Mon, 15 Aug 2011 01:52:00 GMTSales Tax Savings Opportunities for Interstate Motor Carriershttp://www.ksmcpa.com/news-blog/sales-tax-savings-opportunities-for-interstate-motor-carriers
<p>A number of states provide a variety of sales and use tax exemptions to Interstate Motor Carriers (IMCs). The types of exemptions vary from state to state, but generally apply to the acquisition of tangible personal property used by IMCs in transportation operations. Common exemptions include the purchase and lease of rolling stock (tractors and trailers), repair parts for exempt rolling stock, property that becomes part of rolling stock (GPS type devices), and fuel.</p><p><a href="//mpcms.blob.core.windows.net/44e8f4df-a2c6-4d53-84f1-c1d6e0db0654/docs/7ff06e50-912f-40dc-9fa7-2d9a0c562463/truck-times_2011_issue-2.pdf" target="_blank">Read the full text of&nbsp;our <em>Truck Times</em>&nbsp;newsletter.</a></p>jcody@ksmcpa.com (Jenina Cody)Fri, 12 Aug 2011 19:07:00 GMTFASB Issues New Guidance for Presentation of Other Comprehensive Incomehttp://www.ksmcpa.com/news-blog/fasb-issues-new-guidance-for-presentation-of-other-comprehensive-income
<p>The Financial Accounting Standards Board (FASB) has issued new guidance for how companies must present other comprehensive income (OCI) and its components in their financial statements. The guidance applies to all companies that report items of OCI but perhaps is most relevant for companies that have historically presented components of OCI as part of their statement of changes in stockholders&rsquo; equity, an option that is no longer available under this guidance.</p><p><strong>ASU 2011-05</strong><br />The new guidance, found in <a href="http://www.fasb.org/cs/BlobServer?blobcol=urldata&amp;blobtable=MungoBlobs&amp;blobkey=id&amp;blobwhere=1175822630078&amp;blobheader=application%2Fpdf">Accounting Standards Update (ASU) 2011-05, <em>Presentation of Comprehensive Income</em></a><em>, </em>is intended to increase the prominence of items that are recorded in OCI and improve comparability and transparency in financial statements. The guidance should make it easier for users of financial statements to evaluate the effect of OCI on a company&rsquo;s overall performance.</p><p>The new guidance described in ASU 2011-05 will supersede the presentation options in Topic 220 (previously known as Statement of Financial Accounting Standards No. 130, <em>Reporting Comprehensive Income</em>). The guidance, however, affects only the <em>presentation</em> of OCI, not the<em> components </em>that must be reported in OCI.</p><p><strong>Comprehensive Income Presentation Standards</strong><br />Both U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) require financial statements to present comprehensive income (CI) in two parts:</p><ol><li>Net income and its components, such as income from continuing operations, discontinued operations and extraordinary items, and</li><li>OCI and its components.</li></ol><p>CI measures all of a company&rsquo;s changes in equity that result from &ldquo;nonowner changes.&rdquo; Therefore, it captures all recognized transactions and other economic events that affect equity in a period, <em>except</em> transactions with the company&rsquo;s owners, like investments by owners or distributions to owners. According to FASB, even though CI is a &ldquo;useful measure,&rdquo; information about the components of CI can reveal significantly more than the total amount of CI does.</p><p>OCI includes all of the components of CI that are not recorded directly on the income statement as a component of net income. Examples include:</p><ul><li>Foreign currency translation adjustments</li><li>Unrealized holding gains and losses on available-for-sale securities</li><li>Unrealized holding gains and losses that result from a debt security being transferred into the available-for-sale category from the held-to-maturity category</li><li>Gains and losses relating to pensions and other postretirement benefits</li><li>Prior service costs or credits associated with pension or other postretirement benefits</li></ul><p>Even companies that do not have any of the above items need to be aware of the new guidance. FASB has indicated that other potential upcoming accounting standard changes likely will mean more items must be presented as OCI in the future.</p><p><strong>New Alternatives for Presenting OCI</strong><br />Until now, U.S. GAAP gave companies three alternatives for presenting their OCI:</p><ol><li>As part of the income statement, below net income and listing the various OCI components, to arrive at CI,</li><li>In a separate statement (&ldquo;statement of comprehensive income&rdquo;), which begins with net income and then lists the various OCI components, to arrive at CI, or</li><li>As part of the statement of stockholders&rsquo; equity, in a column titled &ldquo;Accumulated OCI,&rdquo; which totals all OCI amounts recorded.</li></ol><p>FASB&rsquo;s new guidance requires companies to present OCI in one of two ways. The first option is to present OCI in a single continuous statement of comprehensive income that lists the components of net income and total net income, the components of OCI and total OCI, and the total of CI.</p><p>Alternatively, a company can take a two-statement approach. An income statement must present the components of net income and total net income, and a statement of OCI, immediately following the income statement, must present the components of OCI, a total for OCI and a total for CI. The second statement may begin with net income.</p><p>Regardless of the option selected, companies no longer can present adjustments for items reclassified from OCI to net income in their footnotes. They must present the adjustments on the face of the financial statements where the components of net income and OCI are presented, and corresponding adjustments must appear in both net income and OCI.</p><p>The idea is to avoid the double counting of items in both net income and OCI. For example, a company might realize gains from investment securities and include them in net income in the current period. An adjustment is necessary because the gains were already included in OCI as unrealized holding gains in that period or earlier periods. The company must deduct the gains through OCI for the period in which they are included as net income so that they are accounted for only once.</p><p>As in the past, companies are free to present OCI components either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense or benefit related to the total OCI. The tax effect for each component must be disclosed in the financial statement notes or presented in the statement that presents OCI.</p><p><strong>What about IFRS?</strong><br />Like other recent changes to FASB&rsquo;s accounting standards, the new guidance is designed to facilitate the convergence of U.S. GAAP with IFRS. But the changes do not completely converge the requirements for presenting OCI under the two sets of standards.</p><p>Differences remain over whether an item of income is initially reported in net income or OCI. Nonetheless, users of financial statements will now find it easier to compare statements of CI prepared under U.S. GAAP with those prepared under IFRS.</p><p><strong>Effective Dates</strong><br />The guidance in ASU 2011-05 takes effect for public companies during the interim and annual periods beginning after Dec. 15, 2011. It is effective for private companies for annual periods beginning after Dec. 15, 2012, and interim and annual periods thereafter. Early adoption is permitted.</p><p>Companies impacted by the guidance must apply it retrospectively for all periods presented in the financial statements.</p><p>Please contact your KSM advisor for more information.</p>jcody@ksmcpa.com (Jenina Cody)Fri, 29 Jul 2011 19:12:00 GMTFee Disclosure Requirements for Qualified Retirement Planshttp://www.ksmcpa.com/news-blog/fee-disclosure-requirements-for-qualified-retirement-plans
<div>While gasoline prices have captured the headlines over the past several months, fees related to 401(k) plans may soon also gain attention, as well as the attention of plan participants. Based on a recent 2010 American Association of Retired Persons (AARP) study, 71 percent of participants believed they paid no fees for their 401(k) plans. Contrary to popular opinion, 401(k) plans and their investments are not free.&nbsp;</div><p>To address the lack of fee transparency in the defined contribution market &ndash; 401(k), profit sharing and 403(b) plans &ndash; the Department of Labor (DOL) has taken the position that the plan sponsor, as a plan fiduciary, must understand how much is being paid for each service performed, that the services are appropriate, and that the amounts are reasonable.&nbsp;&nbsp;</p><p><strong>DOL Initiatives</strong></p><p>In December 2007, the DOL proposed regulations under a three-pronged approach to enhance fee transparency relating to qualified retirement plans that have been, or will soon be, implemented. These three initiatives include:&nbsp;&nbsp;</p><ul><li>An updated Form 5500 Schedule C (effective with the 2009 filing)</li><li>Fee Disclosure by Service Providers to Plan Fiduciaries (effective Apr. 1, 2012)</li><li>Fee Disclosures by the Plan Fiduciaries to Plan Participants (effective for the first plan year, beginning on, or after, Nov. 1, 2011)&nbsp;</li></ul><p>Most plan sponsors have already begun to comply with the first initiative by filing their 2009 Form 5500 Schedule C. Any plan service provider that received compensation from plan assets is required to disclose to the plan sponsor the amount and nature of service for which they are receiving compensation. The DOL will certainly take a much closer look at this information with the 2010 filings.&nbsp;</p><p>The second initiative, under The Employee Retirement Income Security Act of 1974 (ERISA) 408(b)(2), requires covered service providers to give the plan fiduciary disclosures that outline all services to be provided and all compensation (direct, indirect, non-monetary, etc.) earned by the service provider and any affiliates and/or sub-contractors of the service provider. The fee disclosures must also reflect the fiduciary status of the provider, fees related to the termination of their services, a reasonable and good faith estimate of the plan&rsquo;s recordkeeping costs, and expense information relating to the plan&rsquo;s investment alternatives (expense ratios, sales charges, redemption fees, wrap fees, etc.).&nbsp;</p><p>The final initiative addresses the DOL&rsquo;s concern that participants are not provided with the necessary information to make informed decisions about their plan&rsquo;s investment choices. Effective Jan. 1, 2012 for a calendar year-end plan, plan sponsors, under ERISA 404(a)(5), must now furnish annual and quarterly disclosures to all participants in participant-directed plans. The disclosures must include <strong>Plan-Related</strong> <strong>Information</strong>, such as:</p><ul><li>general information about the plan&rsquo;s investment options;</li><li>administrative expense information (plan level fees); and</li><li>individual expense information (individual transaction-based fees).&nbsp;&nbsp;&nbsp;</li></ul><p>Additionally, the disclosures must include <strong>Investment-Related Information</strong>, such as:</p><ul><li>performance data;</li><li>benchmarking information;</li><li>fee and expense information;</li><li>an Internet website address; and</li><li>a glossary to assist participants with investment terminology.&nbsp;</li></ul><p><strong>Fiduciary Responsibility</strong></p><p>ERISA requires that plan fiduciaries, when selecting and monitoring service providers and plan investments, act prudently and solely in the interest of the plan&rsquo;s participants and beneficiaries. A major responsibility of a plan fiduciary is to ensure that the plan&rsquo;s fee arrangements with its service providers are &ldquo;reasonable,&rdquo; and that only &ldquo;reasonable&rdquo; compensation is paid out of plan assets for services provided to the plan. Several recent court cases have focused on this &ldquo;reasonable&rdquo; standard with mixed results for plan sponsors.&nbsp;</p><p><strong>How Should a Plan Fiduciary Prepare?</strong></p><p>As a plan sponsor and as the plan fiduciary, the following actions are recommended to comply with the new fee disclosures requirements:</p><ul><li>identify service providers;</li><li>determine all applicable fees to which the plan is subject to;</li><li>analyze the fees for reasonableness;</li><li>document the process and the reached conclusions;</li><li>discuss the expected timing, method and compliance of the disclosure requirements with services providers;</li><li>communicate the plan fees with participants; and</li><li>establish a process to periodically review service provider agreements for performance.&nbsp;</li></ul><p>Taking the above steps may prevent having to answer some tough questions from plan participants once they receive their first quarterly statement in 2012 and are made aware of possible fee charges to their individual accounts. Let the rising and falling of gas prices keep the headlines, not the company&rsquo;s 401(k) plan costs.</p><p><br /><br /><br />&nbsp;</p>jcody@ksmcpa.com (Jenina Cody)Fri, 22 Jul 2011 01:46:00 GMTCharity Gaming: Credit Cardshttp://www.ksmcpa.com/news-blog/charity-gaming-credit-cards
<p>The Indiana Gaming Commission recently implemented changes to charity gaming legislation. SEA 340-2011 included the expansion of the use of credit cards at an allowable event. Effective July 1, 2011, organizations may not accept credit cards or extend credit to a player for the purchase of a chance to play in a game of chance during an allowable event or for the purchase of licensed supply. However, a qualified organization is permitted to accept credit cards for the non-gaming portions of an allowable event; such as the purchase of food, beverages, merchandise, and retail goods and services offered at a benefit auction.</p><p>In addition, the legislation allows for the use of a volunteer ticket agent, removes related activities from the inclusion in gross revenue to determine license fees, and increases the number of days a qualified organization may hold a festival.</p>jcody@ksmcpa.com (Jenina Cody)Mon, 11 Jul 2011 02:15:00 GMT